Discussion Papers 2025

CIRJE-F-1242	"Wartime Financial Control and Allocation of Capital: The Case of Japan during World War II"
Author Name	Okazaki, Tetsuji
Date	March 2025
Full Paper	PDF file
Remarks

Abstract
During World War II, the Japanese government implemented financial controls to reduce funds for “nonessential and nonurgent” industries, and thereby secured funds for the strategic industries. For this purpose, the government classified industries into classes, and regulated fund flows to Class C industries, regarded as “nonessential and nonurgent.” This paper identifies the impact of this regulation on capital allocation using firm-level panel data. The regulation lowered capital growth by around 6.5 percentage points, and that the total capital of the Class C industries in 1942 was around 30% lower than its counterfactual value assuming there had been no regulation.
Keywords: Economic control, financial control, war economy, fund allocation, Japan

Abstract

During World War II, the Japanese government implemented financial controls to reduce funds for “nonessential and nonurgent” industries, and thereby secured funds for the strategic industries. For this purpose, the government classified industries into classes, and regulated fund flows to Class C industries, regarded as “nonessential and nonurgent.” This paper identifies the impact of this regulation on capital allocation using firm-level panel data. The regulation lowered capital growth by around 6.5 percentage points, and that the total capital of the Class C industries in 1942 was around 30% lower than its counterfactual value assuming there had been no regulation.

Keywords: Economic control, financial control, war economy, fund allocation, Japan