The revelation in September 2015 that the German carmaker Volkswagen had been cheating on emissions testing made headlines around the world, but it was greeted with especially strong consternation in Puebla, Mexico. At first blush, this mid-sized colonial city 80 miles southeast of Mexico City, the capital of the surrounding state of Puebla, would seem an odd place for such a heated reaction. It soon becomes clear, however, why local politicians, business leaders, and union officials were so concerned over the fallout of the Volkswagen scandal. The firm accounted for almost a quarter of the state of Pueblaâs GDP, produced more than 80 percent of its exports, and supported the employment of nearly 80,000 workers.1 A potential boycott of VW cars or crippling fines from US regulators threatened to send shockwaves through the local economy.
At the same time that commentators in Puebla were lamenting the stateâs extreme dependence on the troubled carmaker, in nearby QuerĂ©taro, another mid-sized industrial city and state capital in central Mexico, local officials and business leaders were celebrating another year of economic success. The state of QuerĂ©taro was experiencing record inflows of foreign direct investment, which totaled over $1.3 billion during 2015 and included several new projects in the booming aerospace sector.2 The industry had grown by leaps and bounds over the past decade to become one of the worldâs leading aerospace hubs.3 As the year drew to a close, officials and industry leaders were finalizing plans for the National Center of Aeronautical Technologies (CENTA), a state-of-the-art research facility, which would be built on the grounds of QuerĂ©taroâs aerospace industrial park. The divergent fate of the two statesâ economies in late 2015 was no mere accident. Instead, it reflected a decades-long process of economic and political change. This change had its roots in how local elites responded to the breakdown of Mexicoâs authoritarian regime and state-led development model in the 1980s.
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Like many countries, Mexico underwent dual economic and political transitions in the late twentieth century.4 The Partido Revolucionario Institucional (PRI) saw its monopoly on political power weaken during the 1980s and 1990s after ruling Mexico as a hegemonic party for more than half a century. Opposition parties, whose role had previously been to provide a veneer of democratic legitimacy by participating in pro forma elections organized by the PRI, began to seriously challenge the ruling party in local and legislative races. This steady increase in political competition culminated in a presidential transition in 2000. In the economic realm, the 1980s debt crisis forced the PRI to dismantle the state-led development model of the post-war era and embark on a series of far-reaching and deep market reforms. In less than a decade, the government eliminated barriers to trade, liberalized financial markets, privatized wide swaths of the economy, and confirmed Mexicoâs new place in the global economy by signing a historic free trade agreement with the United States and Canada.
While the legacy of these changes remains the subject of intense debate, one result is uncontroversial: their impact has been uneven across Mexicoâs 32 federal entities.5 Trade liberalization and other market reforms widened the already-large wealth gap between Mexicoâs richest and poorest states.6 In the political realm, some states experienced intense electoral competition and transitions of power in the 1980s, while others continued to be controlled by the PRI well into the twenty-first century, leading to major subnational disparities in levels of democracy, public goods provision, and the quality of governance.7 As a result, Mexico today is a mosaic of diverse subnational realities. Some states boast dynamic economies integrated into global value chains and supported by efficient local governments that are subject to meaningful checks on their power. Others continue to be characterized by patrimonial governance and highly exclusionary economic models. The majority fall somewhere in between.
Surprisingly, there has been little scholarship exploring the connections between subnational political and economic divergence in response to Mexicoâs dual transitions. Most studies of the post-reform economic performance of Mexican states have focused on the role of factor endowments and geography in explaining economic outcomes. They have generally found that states with initial advantages in human capital, infrastructure, and industrial development and those located closer to the US border experienced faster growth after trade liberalization (see RodrĂguez-Pose and SĂĄnchez-Reaza 2002; Chiquiar 2005; Esquivel et al. 2005). In reaching these conclusions, many authors either implicitly or explicitly acknowledge the relevance of local political institutions, which help determine the quality and quantity of growth-enhancing public goods such as education and infrastructure. However, their use of econometric and statistical methods does not allow for the consideration of questions such as why institutions differ across subnational jurisdictions, which ones matter most for subnational development, and the mechanisms through which they lead to different economic results.8 This lack of attention to local political variables appears especially glaring in light of the fact that Mexicoâs market reforms and democratic transition overlapped with a significant decentralization process, which greatly enhanced the power of subnational officials in the economic realm (Ward and RodrĂguez 1999; Snyder 2001a).9 In addition, existing work has tended to define outcomes narrowly, focusing on growth and per-capita income, and therefore potentially missing variation on other important dimensions of economic development. These studies cannot explain why, for example, QuerĂ©taro has consistently attracted new and increasingly technologically advanced industries, while Pueblaâs economy continues to be dominated by the automobile sector more than three decades after Mexico opened its economy.
This book, by contrast, directly addresses the question of how local political institutions affected subnational economic outcomes in the context of Mexicoâs market reforms and democratization. It argues that subnational politicians, in response to change at the national level, adopted new political strategies towards business and lab...