Abstract

This article proves the existence of Constant Returns of Scale for Investment in China and Increasing Returns of Scale for Latin America per Unit of Effective Labor between 1991 and 2019. Such returns, for the case of China, had created an Investment surplus which can be used in more efficient form via Foreign Direct Investment to Latin America. On the contrary, the absence of Investment makes Latin America to depend on it to grow. To test our argument, we will use the Solow model, which assumes constant returns of scale of the productive factors and defines saving and technological development rates as exogenous to the model. We will use a time series from 1978 to 2019 to study the Chinese economy; for Latin America we will use a time series from 1991 to 2019. A multifactorial linear regression will be being applied for both cases. The results show how important the Investment per Effective Unit of Labor is for both countries, and how much they can benefit from the export of surplus Chinese’s investments to Latin America, which has a surplus demand for these.