Nonlinear Domar aggregation over transforming production networks

An economy-wide production network, manifested through monetary input–output coefficients, inherently destabilizes during the general equilibrium propagation of sectoral productivity shocks when substitution elasticities are non-neutral. This study explores the global properties of such networks by mapping the nonlinear price manifold into a linearized transcendent space. Within this framework, we identify the emergence of network singularities, identifying the metabolic thresholds where productivity declines lead to supply-chain paralysis or efficiency gains render primary factors redundant. Furthermore, we demonstrate that the interaction between productivity shocks – the sign of synergism –is uniquely determined by the substitution elasticity $$\sigma $$ . Our findings transform industrial policy into an inverse problem of network topology: we provide a rigorous justification for why an inelastic network necessitates selective concentration on bottleneck sectors, whereas an elastic network favors a diversified investment strategy.