Abstract
Puebla and Querétaro, two industrial states in central Mexico, have experienced dramatic economic divergence since Mexico initiated market reforms in the mid-1980s. Querétaro has enjoyed rapid growth for three decades, accompanied by economic transformation and upgrading into knowledge-intensive sectors. Puebla, by contrast, has had mediocre growth, and its GDP and exports have been highly concentrated in the automotive sector. Most explanations of regional economic divergence in Mexico point to geography and factor endowments such as human capital and infrastructure. However, Puebla and Querétaro had remarkably similar socioeconomic profiles when Mexico began to open its economy in 1985. This chapter presents this empirical puzzle, which the rest of the book address. It also previews the book’s core argument, which explains subnational economic divergence as a result of distinct patterns of interaction among local governments, business associations, and labor unions during and after Mexico’s market reforms and democratization.
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Notes
- 1.
The employment figure includes workers whose jobs depended indirectly on Volkswagen through the firm’s supply chain. See BBC Mundo, “¿Cómo el escándalo de Volkswagen puede afectar la planta de Puebla en México?” 23 September 2015. http://www.bbc.com/mundo/noticias/2015/09/150923_mexico_puebla_volkswagen_escandalo_an
- 2.
All monetary figures are reported in current US dollars unless otherwise noted.
- 3.
See El Universal 16 June 2015, “Querétaro, top 5 en aeronáutica,” http://www.eluniversalqueretaro.mx/metropoli/16-06-2015/queretaro-top-5-en-aeronautica and El Financiero, “Querétaro, destino líder de la inversión aeronáutica en México”, 24 February 2016, http://www.elfinanciero.com.mx/bajio/queretaro-destino-lider-de-la-inversion-aeronautica-en-mexico
- 4.
- 5.
Mexico’s federal entities include the 31 states and the Federal District (Mexico City), which until a 2016 constitutional reform had a separate status and more limited powers than Mexico’s states. Throughout this book the terms “federal entities” and “states” will be used interchangeably for the sake of readability.
- 6.
- 7.
See Gibson (2012) and Giraudy (2015) on subnational variation in democracy across Mexico. Benton (2012) and Durazo Herrmann (2016) document the continuation of patrimonial practices in some states, while Beer (2003) and Hecock (2006) show how political competition affects state-level governance and public service provision.
- 8.
A more recent set of quantitative papers has considered the role of local institutions and governance more directly, finding that variables such as control of corruption, efficiency of the judicial system, and innovation policy are associated with higher income levels and faster growth in Mexican states (see Weiss and Rosenblatt 2010; Rodríguez-Pose and Villarreal 2015; Chávez Martín del Campo et al. 2017). However, the limitations mentioned above surrounding the explanation of institutional origins and the identification of mechanisms linking institutions to economic outcomes apply to this work as well.
- 9.
During the decades of PRI hegemony, Mexico’s political system was highly centralized despite its de jure federal structure (see Diaz-Cayeros 2006). As described by Falleti (2010), Beer (2004), and Ochoa-Reza (2004), decentralization, which began in the mid-1980s, originally took the form of devolving responsibility for health and education services to state governments. This initial administrative decentralization sparked subnational demands for greater fiscal resources, resulting in a significant increase in the power and competencies of local officials by the end of the 1990s. At the same time, growing electoral competition at the local level further increased pressure for subnational autonomy. In this way, decentralization, initially intended to forestall deeper political change, ended up accelerating the PRI’s loss of control over Mexico’s political system.
- 10.
Throughout the book, the focus is primarily on government-business relations at the subnational level, as this relationship had greater influence over the long-run trajectory of subnational economies. Differences in government-labor relations, while notable, were less determinative for economic outcomes, mainly due to organized labor’s declining influence in the context of economic integration and other market reforms (Bensusán and Middlebrook 2010).
- 11.
An encompassing business association is generally understood as an association that represents a broad cross section of firms as opposed to a specific industry (see Olson 1982; Maxfield and Schneider 1997). As such, encompassing associations are more likely to pursue pro-growth policies instead of sector-specific benefits that reduce overall welfare. See Chapter 2 for a discussion of this literature.
- 12.
While decentralization led to a net gain in power for local officials across Mexico, the level of subnational empowerment varied across states. For example, the amount of untied federal transfers (participaciones) that each state received depended, in principle, on factors such as population and local fiscal effort, although in practice political considerations such as partisan alignment between governors and the president and the level of local political competition influenced the distribution of these resources (see Diaz-Cayeros 2004, 2006; Flamand 2006). In addition, as discussed in Chapter 2, the ability of subnational officials to lobby federal authorities also shaped both the level and type of federal resources states received.
- 13.
Structural transformation occurs when the composition of industries in an economy evolves towards more technologically advanced sectors. By contrast, upgrading generally refers to the nature of production processes and often entails a movement towards higher-value-added activities within a given industry’s value chain.
- 14.
The distinction between institutions as rules and institutions as organizations comes from the seminal work of North (1990). Norms and practices would fall in the category of informal institutions, which Helmke and Levitsky define as “socially shared rules,” formulated and enforced outside of officially sanctioned channels (2006, 5).
- 15.
While development is a broad concept that encompasses human, social, and political dimensions as well as economic ones, I will use “development” and “development outcomes” as stand-ins for structural transformation and upgrading, the book’s outcomes of interest, to avoid excessive repetition of these clunky terms.
- 16.
This is not to deny any relevant differences in the states’ geographies. The role of geography as a potentially confounding variable is discussed in Chapter 2, along with other alternative explanations.
- 17.
In addition, as the data in Figure 1.1 indicate, the income gap between the two states had been considerably narrower as recently as 1980. Querétaro managed to perform much better than Puebla during the 1980s, including the first half of the decade. This observation provides further evidence that the standard arguments based on the effects of trade liberalization do not explain these cases well.
- 18.
These figures are from INEGI Sistema de Cuentas Nacionales de México, based on 2013 prices.
- 19.
The GDP figures cited here cover the period between 1980 and 2016 and are based on estimates from Germán-Soto (2005) for the years between 1980 and 1992 and data from INEGI’s Sistema de Cuentas Nacionales de México, accessed March 2018, for the remaining years. These are the sources used throughout the book for state GDP data.
- 20.
Structural transformation matters because economies tend to diversify into new economic sectors as they develop, although they begin to specialize again after reaching relatively high levels of income (Imbs and Wacziarg 2003). Diversification creates new opportunities for learning-by-doing and adoption of technology that can sustain dynamic development gains and allow for transitions to high-income levels (Rodrik 2004).
- 21.
The measure of industry complexity used in these calculations attempts to capture the amount and complexity of knowledge and know-how incorporated in different products. Higher values of the index indicate more complex and knowledge-intensive industries. Averages are weighted by industry share in total employment. See the Mexican Atlas of Economic Complexity for more information: http://complejidad.datos.gob.mx/#/?locale=en-mex
- 22.
- 23.
The literature identifies several channels for upgrading in the context of global value chains: process, product, functional, and inter-sectoral upgrading (see Humphrey and Schmitz 2002). Process upgrading involves increasing productivity and reducing costs through improving production processes or incorporating new technology (Schmitz 1999); product upgrading entails shifting to more sophisticated or better quality products (Gereffi 1999); functional upgrading requires moving into higher-value-added activities within a production chain (Bair and Gereffi 2001); and inter-sectoral upgrading means diversifying into new products altogether (Guerrieri and Pietrobelli 2004).
- 24.
In 1993, the median industry productivity in Querétaro was 31.9, compared with 27.1 in Puebla (measured as 1000 pesos of value added per worker). The median level of productivity is used as opposed to the average in order to provide a better gauge of economy-wide productivity levels. These calculations are based on INEGI Censos Económicos for various years.
- 25.
However, Querétaro remains in the middle of the pack of Mexican states on this variable. The definition of high-technology industries is based on the OECD’s industry classifications (see OECD 2011).
- 26.
The most-similar cases approach identifies cases with equivalent values on all variables that could plausibly affect the outcome of interest, save for one. The difference in this remaining variable, by extension, must account for any observed difference in outcome (George and Bennett 2005).
- 27.
- 28.
Partial exceptions to this statement are studies by Miranda (2005), which examines the institutions and policies that encouraged the initial industrialization of Querétaro in the 1950s and 1960s, and Díaz Aldret (2011), who documents the origins in the 1980s of some of the key features of Querétaro’s contemporary institutional setting but does not link them to economic outcomes.
- 29.
As these examples suggest, the ability of subnational actors to influence economic outcomes does not depend on the existence of federal institutions and can arise even when formal subnational policy authority is limited. Various studies have found that local officials often amass considerable informal influence over economic policy, and it is precisely in the subnational jurisdictions most integrated with the global economy where local authorities tend to benefit from such “de facto decentralization.” (see Malesky 2008 for a review).
- 30.
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Kahn, T. (2019). Introduction. In: Government-Business Relations and Regional Development in Post-Reform Mexico. Latin American Political Economy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-92351-2_1
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