SAVING, INVESTMENT AND INTERNATIONAL CAPITAL MOBILITY IN EC COUNTRIES

Drawing on different assumptions on the behaviour of the private and p ublic sectors and on alternative scenarios of international capital mo bility, causality relationships are derived between saving and investm ent and between the private-sector and public-sector saving investment gaps. Cointegration is used to measure the resulting relationships be tween 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 budgeta ry policy to the current-account balance in all the countries under st udy. Furthermore, the empirical results suggest that capital controls have been the main instrument used to target the external balance.