Financing a Planned Economy

The role of banking and nance in the Golden Age of European growth (1950-1973) is very little known and widely underestimated. This paper studies the French system of economic planning and investment-based strategy that enhanced medium and long term nancing (called 'invest-ment credit'). First, I describe the new institutions that were built after WWII to organize credit allocation and especially highlight the role of the central bank. I then use a newly constructed database that matches the amount of credit (that had to be registered at the Banque of France) in 49 sectors to corporate tax sectoral statistics. It shows a signicant positive relationship between 'investment credit' and the marginal product of capital. The allocation of medium/long term credit managed to favor the allocation of productive capital across sectors and thus to ensure the catch-up process. Using GMM estimations in order to avoid the endogeneity bias, I nd that the eect of 'investment credit' on growth is signicant and positive, contrary to short term credit which did not play any role for investment. The new institutions that emerged after WWII were designed to solve a coordination problem that is to nance long term investment although it was not privately benecial because too risky for banks. Understanding the institutional framework that shaped the mechanisms and success of credit policy in the French mixed economy during the 50s and 60s also helps to understand its failures during the mid 70s.