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You'll need to reference it in your package manager as well 

i am currently using git submodule and using import { Application} from "./assets/foo";

was checking if there is a simpler way instead of maintaining the submodule version

You can publish the package to your local package registry (or to GitHub's / GitLab's / ...), and the resolve it in the normal way using npm or yarn. But if both repos are under regular development, you might be better off leaving it as-is for now. Switch to publishing packages later, when you're making fewer changes.

You can also use yarn workspaces, typescript paths, and a number of other non-Pulumi-specific solutions.