Industrial financialization and cross-sectoral risk contagion: A capital flow perspective

Abstract

In this paper, we investigate how industrial financialization reshapes cross-sectoral risk contagion from a capital flow perspective. Cross-sectoral risk contagion networks are constructed, and a novel technique, the control perturbation method, is developed to formulate the cross-sectoral risk contagion patterns induced by the financialization of the industrial sector. The empirical analysis reveals that the financialization of the industrial sector systematically amplifies crosssectoral risk contagion, ultimately inducing ergodic risk propagation dynamics across the economic system.