When Sectoral Recovery Fails to Aggregate

Marc Klemp

No 21172, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Does monotone sectoral recovery survive aggregation? With fixed nonnegative weights, it does. This paper studies the same preservation question when aggregation weights are endogenous Domar weights generated by a production network with gradual pass-through of intermediate-input cost changes. The aggregate derivative decomposes into a recovery push and a network drag, and the resulting reversal index gives an exact condition: aggregate displacement deepens if and only if the drag exceeds the push. This characterisation yields a sharp preservation boundary. Among nonnegative input-output matrices with spectral radius below one, the only matrix that preserves recovery for every admissible sectoral path is the no-network matrix $\Omega=0$. The drag passes through the network one more time than direct sectoral recovery, so it scales at a higher order in network connectivity. Two channels contribute in levels: growth of total Leontief-weighted cost exposure as pass-through rises, and reweighting toward sectors further behind in recovery. In an illustration using the 55-sector US input-output matrix and cross-sector robot density data, the drag peaks at nearly eight times the direct recovery effect under benchmark assumptions.

Keywords: Production networks; Input-output linkages; Automation (search for similar items in EconPapers)
JEL-codes: C67 D57 E25 O33 (search for similar items in EconPapers)
Date: 2026-02
New Economics Papers: this item is included in nep-eur and nep-net
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