Financing a Planned Economy: Institutions and Credit Allocation in the French Golden Age of Growth (1954-1974)

The role of banking and finance 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 financing (called “investment credit” at that time). First, I describe the new institutions that were built after WWII to organize credit allocation. I especially highlight the role of the central bank through the National Credit Council. 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 significant 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 find that the effect of “investment credit” on growth is significant and positive, contrary to short-term credit which did not play any role for investment. 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.