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 < 0.01). Second, Chinese bottleneck sectors exhibit upstreampush asymmetry (ρup = 1.03, ρdown insignificant; asymmetry ratio 2.56), while US bottleneck sectors exhibit downstream-contraction asymmetry (ρdown = 0.88, ρup insignificant), forming a mirror image across the two countries. Third, the proportion of Chinese bottleneck sectors is significantly positively correlated with the financial excess index FYR (r = +0.55**, p = 0.015), and idling is most severe when bottlenecks coincide with shock centers. The two regimes follow opposite paths but reach the same endpoint: aggregate regulation fails when structural imbalance prevails.
