Network Absorptive Capacity Threshold and Directed Propagation Asymmetry — Evidence from China–US Input-Output Networks

Yingxin Shi

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: A house is demolished and rebuilt; GDP rises twice, yet the net wealth remains one house- resources flow through the economy without being effectively absorbed. This paper formalizes this intuition: every sector in an industrial network possesses an absorptive capacity κ that measures its ability to transform intermediate inputs into final output. When κ falls below a threshold κ*, the propagation of shocks along upstream and downstream directions becomes systematically asymmetric-upstream cost push can transmit forward through bottlenecks, whereas downstream demand feedback cannot travel backward-preventing capital from completing the full cycle from production to terminal value realization and causing spillover into idling or stagnation. Using 35-sector input-output data for China and the United States from 2000 to 2024, this paper obtains three findings. First, Hansen's endogenous threshold estimation confirms κ* ≈ 0.18, with a highly significant difference in propagation coefficients above and below the threshold (F = 18.92, p

Keywords: input-output network; absorptive capacity threshold; directed propagation; financial excess; China–US comparison (search for similar items in EconPapers)
Date: 2026
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