The two-sector endogenous growth model of Rebelo (1991) and Felbermayr (2007) is embedded within an asymmetric two-country international trade and bargaining framework. Starting with a free trade equilibrium, the analysis reveals that: (i) foreign aid can increase the total world production of consumption goods due to specialization, raise therefore welfare in both countries and place both countries on a Balanced Growth Path (BGP); (ii) a trade agreement that is based on bargaining and endogenizes the linkage between foreign aid and adoption of trade policies generates higher welfare for both countries compared to autarky; (iii) with bargaining, the richer country's welfare increases while the poor country's welfare decreases compared to their welfare levels in case of free trade, despite the foreign aid transfer from the rich to the poor country.