SAVING, INVESTMENT AND INTERNATIONAL CAPITAL MOBILITY IN EC COUNTRIES

Drawing on different assumptions on the behaviour of the private and public sectors and on alternative scenarios of international capital mobility, causality relationships are derived between saving and investment and between the private-sector and public-sector saving investment gaps. Cointegration is used to measure the resulting relationships between these sets of variables in EC countries over the 1960-88 period. The paper shows that there has been a lack of any reaction by budgetary policy to the current-account balance in all the countries under study. Furthermore, the empirical results suggest that capital controls have been the main instrument used to target the external balance.