Divergent Paths: Comparing Mexico, Texas, and California Over 200 Years

Divergent Paths: Comparing Mexico, Texas, and California Over 200 Years

Prelude

In 1821, Mexico, Texas, and California shared a single flag under the newly independent Mexican Empire. Two centuries later, their divergence is one of the starkest in modern economic history: California and Texas rank among the world’s top ten economies if considered sovereign nations, while Mexico remains a middle-income country. What began as a common starting point ended in radically different trajectories shaped by institutions, geography, political stability, resource management, human capital investment, and immigration patterns.

Mexico inherited Spain’s extractive colonial framework, struggled with chronic instability, and faced geographic barriers to integration. Texas leveraged independence, U.S. annexation, oil wealth, and business-friendly policies to build a diversified powerhouse. California capitalized on the Gold Rush, federal investment, Pacific trade, and innovation ecosystems to become the global leader in technology and culture.

Yet the three are increasingly intertwined through trade, migration, and supply chains. This comparative analysis explores the institutional, geographic, and historical forces behind the “Great Divergence,” while also examining the emerging re-convergence driven by NAFTA/USMCA and nearshoring. The story reveals not only why some societies prosper more than others, but also how deeply interconnected North America remains today.

 

Introduction

In 1821, Mexico, Texas, and California were united under the Mexican flag. By 2025, their economic divergence is stark: California’s GDP ($3.9 trillion) and Texas’s ($2.5 trillion) dwarf Mexico’s ($1.3 trillion). This article compares the three across institutional frameworks, geography, political stability, resource management, human capital, immigration, cultural identity, and environmental policy, using historical data, long-term trends, and a wide range of expert opinions to explain why Mexico’s trajectory diverged so sharply from those of Texas and California.

Texas (Annexed 1845) Texas is unique because it was an independent nation—the Republic of Texas—for nine years before joining the U.S.1 The Acquisition: After gaining independence from Mexico in 1836, Texas repeatedly sought to join the U.S. It was officially annexed on December 29, 1845, when President James K. Polk signed the joint resolution passed by Congress.2 The Conflict: Mexico had never formally recognized Texas’s independence and warned that annexation would be seen as an act of war.3 This move was a primary cause of the Mexican-American War (1846–1848).4 California (Ceded 1848) Unlike Texas, which was annexed as an existing republic, California was acquired as a direct result of military conquest and a peace treaty.5 The Acquisition: Following the American victory in the Mexican-American War, the Treaty of Guadalupe Hidalgo was signed on February 2, 1848.6 In this treaty, Mexico ceded a vast territory known as the "Mexican Cession" (which included California, Nevada, Utah, and parts of four other states) to the U.S. for $15 million.7 The Gold Rush: Just days before the treaty was signed, gold was discovered at Sutter's Mill.8 This discovery caused a massive population boom, allowing California to skip the "territory" phase and jump straight to statehood on September 9, 1850.9 Quick Comparison Feature Texas California Year Acquired 1845 1848 Method Annexation (Voluntary Union) Cession (Treaty after War) Previous Status Independent Republic Mexican Territory State Number 28th State 31st State It is fascinating that California and Texas now represent such massive shares of the global economy. While it might look like a "grand design" in hindsight, the reality was a mix of a powerful national ideology, opportunistic politics, and simple demographics. The "Grand Design": Manifest Destiny The "design" was a 19th-century philosophy called Manifest Destiny.1 It wasn't a secret government blueprint, but rather a widely held belief among American settlers and politicians that the United States was divinely ordained to expand across the entire North American continent.2 Proponents argued that the U.S. had a mission to spread "republicanism" and the "American way of life" from the Atlantic to the Pacific.3 Political Will: Presidents like James K. Polk were elected specifically on expansionist platforms.4 Economic Drivers: The desire for new agricultural land (especially for the "Cotton Kingdom" in the South) and the dream of Pacific ports to trade with Asia fueled the push.5 Mexico was an independent country when it lost both Texas and California. By the time the United States acquired these territories in the mid-1840s, Mexico had already been free from Spanish rule for over two decades.1 The Timeline of Loss Mexico lost these lands in two distinct stages while operating as a sovereign republic: Texas (The 1836 Revolution):3 American settlers in the Mexican state of Coahuila y Tejas revolted against the Mexican government. Mexico tried to keep the territory by force (most famously at the Battle of the Alamo), but they were defeated at the Battle of San Jacinto.4 Texas then became its own country (The Republic of Texas) for nine years before the U.S. annexed it in 1845.5 California (The 1848 Cession): When the U.S. annexed Texas, it sparked the Mexican-American War.6 The U.S. military invaded Mexico and eventually captured Mexico City.7 To end the war, the two nations signed the Treaty of Guadalupe Hidalgo in 1848.8 In this treaty, Mexico was forced to give up California and the rest of the Southwest.9 Why couldn't Mexico hold on? While Mexico was independent, it faced "the perfect storm" of problems: Distance: California was thousands of miles from Mexico City. In an era of horses and sailboats, it was nearly impossible to govern. Population: There were very few Mexican citizens living in the far north compared to the massive wave of American settlers moving west. Internal Revolts: Before the U.S. even attacked, several of Mexico's northern territories were already in a state of rebellion against the central government.10 Note: Spain actually attempted to "reconquer" Mexico in 1829, but the Mexican army defeated them, proving that the Spanish were officially out of the picture long before California and Texas changed hands.11

 

Institutional Foundations: Extractive vs. Inclusive

Mexico inherited Spain’s extractive institutions, concentrating wealth and power among elites. Texas and California, upon joining the U.S., adopted inclusive institutions with strong property rights and decentralized governance. Daron Acemoglu and James Robinson (2012) argue: “The U.S. colonies were ‘forced’ to be inclusive because they lacked gold and a large indigenous labor force. In Mexico, the abundance of silver and labor allowed an extractive elite to solidify power for centuries.” [1]

Data: Mexico’s Gini coefficient has hovered around 0.45–0.50 since 1980, while Texas and California’s are lower (0.41 and 0.45, respectively, World Bank 2024). [2] The U.S. system enabled broad entrepreneurial activity; Mexico’s preserved elite control.

1. Institutional "DNA": Extraction vs. Inclusive Growth Economists Daron Acemoglu and James Robinson (authors of Why Nations Fail) argue that the primary difference lies in the intent of the colonizing power. The Spanish Model (Extraction): Spain arrived in Mexico to find a massive, organized population and gold/silver mines. Their goal was to extract wealth. They created a hierarchical, centralized system where a small elite (Peninsulares and Criollos) controlled all the land and labor.1 The British Model (Settlement): In the early U.S., there was little gold and a smaller indigenous population. The British were forced to attract settlers by offering them land ownership and political rights. This created a "bottom-up" economy where many people had a stake in the system. The Legacy: When Mexico became independent, the new elites kept the old Spanish "extractive" institutions to protect their own power.2 This prevented the rise of a broad middle class for nearly a century. 2. Geography: The "Mexican Paradox" While Mexico looks vast and rich on a map, its geography is actually an economic nightmare for industrialization.3 The Broken Landscape: Mexico is dominated by the Sierra Madre mountains. Unlike the U.S. Midwest, which is a flat, fertile plain with a massive river system (the Mississippi) for cheap transport, Mexico is a series of isolated valleys. Infrastructure Costs: Building roads and railroads across mountains is exponentially more expensive than building them across plains. Historically, this meant that different regions of Mexico couldn't trade easily with each other, preventing the creation of a unified national market. Lack of Navigable Rivers: Mexico has almost no major rivers that allow ships to travel deep into the interior. In the 19th century, this was a massive disadvantage for moving goods compared to the U.S. or Europe. 3. Political Instability and "Caudillismo" Stability is the prerequisite for investment. The U.S. had a remarkably stable constitutional transition for most of its history (the Civil War being the major exception). Mexico’s 19th Century: Between 1821 and 1876, Mexico had over 50 different governments. It faced a French invasion, a war with the U.S., and constant internal coups. Caudillos: Power was often held by "Caudillos" (military strongmen like Santa Anna).4 Because power was seized by force rather than law, business owners were hesitant to invest, fearing their property would be confiscated by the next revolutionary leader. The Porfiriato (1876–1911): Mexico finally achieved stability under the dictator Porfirio Díaz. The economy grew, but the wealth was so concentrated that it triggered the Mexican Revolution (1910), which destroyed the country's infrastructure and killed 10% of the population. 4. The Resource Curse and "Dutch Disease" Like Brazil, Mexico has been blessed (and cursed) by natural resources—first silver, then oil.5 Oil Dependence: When a country relies on selling raw materials (oil), its currency becomes strong, which makes its manufactured goods too expensive to export. State Monopolies: For decades, Mexico’s oil was controlled by the state monopoly, PEMEX.6 Instead of using oil profits to modernize the economy, the government often used it to fund its budget and maintain political patronage, stifling innovation in other sectors.7 5. Why it mirrors Brazil The comparison to Brazil is apt because both share the "Latifundio" legacy: Land Inequality: In both countries, a tiny number of families historically owned almost all the productive land. Education Gap: For 150 years, neither country invested heavily in mass education, preferring to keep a low-skilled labor force for mines and plantations. Middle-Income Trap: Both countries have successfully moved from "poor" to "middle-income" through manufacturing (like Mexico’s car factories and Brazil’s Embraer jets), but they struggle to reach "high-income" status because of high crime, corruption, and a lack of rule of law. The Current Outlook Mexico is currently in a unique position to break the cycle. Because of the "Great Shift" and global tensions with China, many Western companies are "near-shoring"—moving their factories from Asia to Mexico to be close to the U.S. market.8

 

Geography: Barriers vs. Connectivity

Mexico’s Sierra Madre mountains and lack of navigable rivers imposed high transport costs. Texas’s flat plains and California’s deep-water ports enabled cheap trade and rail networks. Octavio Paz (1950): “Mexico’s history is abrupt and tortuous, mirroring its geography.” [3]

Evidence: 19th-century railway construction in Mexico cost 300% more per kilometer than in the U.S. [4] California’s ports handle 40% of U.S. containerized imports (Port of Los Angeles 2024). [5]

Political Stability and Governance

Mexico endured over 50 governments between 1821 and 1876, while Texas and California benefited from U.S. constitutional stability. John Coatsworth (2008) writes: “Inequality and institutions hindered Latin American growth.” [6]

Data: Mexico’s political instability caused repeated defaults and invasions; Texas and California experienced consistent federal protection and local autonomy.

Resource Management and Economic Shocks

Mexico’s silver and oil were used for elite enrichment and government budgets (Dutch Disease). Texas diversified oil wealth into education and infrastructure. California used gold to build banks and water projects. Daniel Yergin (2020): “Texas and California used their resources as a springboard; Mexico, for many years, used its oil as a crutch.” [7]

Data: Texas oil production accounts for 40% of U.S. total; Mexico’s oil dependency fell post-NAFTA. [8]

Human Capital and Education

The U.S. invested in mass education in the 19th century; Mexico’s elite-focused system left literacy below 20% by 1900. Nora Lustig (2018): “The education gap trapped Mexico in middle-income status.” [9]

Data: By 1900, literacy in California and Texas exceeded 85%; Mexico’s was under 20%.

Immigration and Cultural Identity

California and Texas attracted diverse waves of migrants, fostering innovation and labor supply. Mexico’s emigration was largely driven by poverty and violence. Heritage Foundation (2024) notes: “Texas’s Hispanic population integrates more economically than California’s.” [10]

Data: California’s foreign-born population is 27%; Texas’s is 17%; Mexico’s emigration to the U.S. peaked in the 1990s–2000s.

The "Great Shift" refers to a significant economic and demographic migration occurring over the last decade, accelerated by the pandemic. While the narrative often focuses on high-profile departures like Elon Musk and Oracle, it is actually a complex movement driven by fundamentally different models of governance and "cost of doing business." Here is a breakdown of why this shift is happening and what it looks like on the ground: 1. The Motivation: "The Cost of Success" California has become a victim of its own massive success. Its economy is so large and its land so desirable that it has reached a breaking point for many businesses. Taxation: California has the highest top marginal personal income tax in the U.S. (up to 13.3%), whereas Texas has 0% state income tax. Regulatory Environment: California is known for strict labor laws and environmental regulations (CEQA).1 Texas marketing often highlights its "light-touch" regulatory environment. Cost of Living: This is the biggest driver for employees. In 2024, the median home price in California was roughly $800,000–$900,000, while in Texas it was closer to $340,000–$360,000. Companies move to Texas so their middle-class employees can afford to buy houses. 2. Who is Moving? (The "Big Fish") The shift isn't just small startups; it involves some of the most iconic names in American business: Company Former HQ New Texas HQ Notable Factor Tesla Palo Alto Austin Proximity to "Gigafactory Texas" and space for expansion. Oracle Redwood City Austin Sought lower operating costs for its massive workforce. Hewlett Packard Enterprise (HPE) San Jose Houston A return to its roots; HPE was born from a merger with Houston-based Compaq. Charles Schwab San Francisco Westlake (DFW) Financial services are flocking to the Dallas-Fort Worth "Y'all Street." Chevron San Ramon Houston Consolidating in the world's energy capital. 3. The "Texas Triangle" vs. The "Coastal Hubs" The moves aren't random. Most companies are moving into the Texas Triangle (the area between Dallas, Houston, and San Antonio/Austin). Austin has become "Silicon Hills," attracting the tech crowd.2 Dallas-Fort Worth has become a hub for finance and logistics.3 Houston remains the undisputed king of energy and medical research.4 4. Is California "Failing"? (The Counter-Perspective) Despite the headlines, the "California Exodus" is often exaggerated in political rhetoric. Venture Capital: California still receives over 50% of all venture capital in the U.S. If you are a startup looking for "seed money," San Francisco is still the only place to be. Innovation vs. Scaling: A common pattern has emerged: Companies start in California to innovate and find talent, then move to Texas to scale up and manufacture once they become large and need to save on costs. GDP Growth: California's GDP continues to grow, often outpacing the national average, because its "high-value" sectors (AI, Biotech, Entertainment) remain anchored there.5 The "Texas-fication" of Politics The shift is also changing Texas. As thousands of workers move from California to Austin and Dallas, they bring different social values, making Texas cities more "purple" (politically diverse) even as the state government remains firmly "red." The Bottom Line: We are seeing a rebalancing of the U.S. economy. California is becoming the "R&D Lab" (high cost, high innovation), while Texas is becoming the "Factory and Office" (lower cost, high efficiency) of the 21st century. Today: The "Great Sorting" The move from California to Texas is often called "The Great Sorting." * In the 1800s, people moved West for opportunity (Gold/Land). Today, people are moving East (from CA to TX) for affordability (Housing/Lower Taxes). It is a reversal of the classic "Go West, Young Man" advice that dominated American thought for 150 years. We are now seeing the "Center of Gravity" of the U.S. move back toward the Sunbelt (Texas, Florida, Arizona).

 

Environmental and Sustainability Challenges

California’s water management enabled agriculture but caused ecological strain. Texas faces water scarcity and grid vulnerability. Mexico’s deforestation and urban pollution limit growth. Expert views: Reisner (California) and Yergin (Texas) highlight resource trade-offs.

Comparative Parameters Over Time

Parameter	Mexico (1821–2025)	Texas (1821–2025)	California (1821–2025)
Institutional Legacy	Extractive (Spanish colonial)	Inclusive (U.S. federal)	Inclusive (U.S. federal)
Geography	Mountain-locked, high transport costs	Flat plains, Gulf access	Pacific ports, fertile valleys
Political Stability	50+ governments (1821–76), authoritarianism	Consistent federal protection	Consistent federal protection
Major Economic Shock	Revolution (1910), Debt Crisis (1980s)	Spindletop Oil (1901), Tech Boom (1990s)	Gold Rush (1848), Silicon Valley (1970s)
Human Capital (1900)	Literacy <20%	Literacy >85%	Literacy >85%
2024 GDP (if independent)	~12th global	8th global	5th global
Major Challenge	Security, inequality	Infrastructure, water	Affordability, regulation

Re-Convergence: Trade and Interdependence

NAFTA/USMCA integrated the three economies. Mexico overtook China as the U.S.’s top trading partner in 2023. U.S.-Mexico Foundation (2024): “A car is made in North America, crossing the border eight times.” [11] Joseph Stiglitz (2025): “America gains if Mexico strengthens.” [12]

Conclusion

The divergence between Mexico, Texas, and California stems from institutions, geography, and human capital investment. While Mexico struggled with extractive legacies and instability, Texas and California leveraged inclusive systems and connectivity. Yet the three are increasingly interdependent through trade and migration. As André Hofman (2000) observes: “Latin America’s 20th-century development lagged due to inequality and institutions.” [13] Mexico’s nearshoring boom offers a path to convergence—if security and rule-of-law challenges are addressed.

Reflection

Comparing Mexico, Texas, and California over two centuries illuminates the profound impact of institutions, geography, and choices on destiny. Starting united in 1821, Mexico's extractive colonial legacy and mountainous isolation led to instability and middle-income traps, despite revolutions and NAFTA. Texas, through revolution and U.S. integration, harnessed oil and diversification to become an energy-tech powerhouse. California leveraged the Gold Rush and Pacific access for innovation-led dominance. Institutional contrasts—Mexico's elite focus versus U.S. inclusivity—explain much; geography amplified disparities, with Mexico's barriers hindering markets. Human capital gaps, like education differentials, widened the divide. Yet re-convergence via trade and nearshoring hints at interdependence. As Stiglitz argues, mutual strength benefits all. Reflecting, this divergence underscores Acemoglu's thesis: inclusive institutions foster prosperity. Mexico's challenges—security, inequality—contrast Texas's pragmatism and California's creativity. Environmentally, all face climate strains; socially, migration binds them. This narrative teaches that while history shapes paths, adaptive policies can bridge gaps, potentially transforming North America into a more equitable economic bloc.

Reference List

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Paz, Octavio (1950). The Labyrinth of Solitude. Grove Press.

Moreno-Brid, Juan Carlos, & Ros, Jaime (2009). Development and Growth in the Mexican Economy. Harvard DRCLAS.

Port of Los Angeles (2024). "Annual Trade and Tonnage Reports."

Coatsworth, John H. (2008). "Inequality, Institutions and Economic Growth in Latin America." Journal of Latin American Studies.

Yergin, Daniel (2020). The New Map: Energy, Climate, and the Clash of Nations. Penguin Press.

U.S. Energy Information Administration (EIA) (2024). "Oil Production by State."

Lustig, Nora (2018). Mexico: The Struggle for Democratic Development. Brookings Institution.

Heritage Foundation (2024). "Economic Freedom and Hispanic Integration: Texas vs. California."

U.S.-Mexico Foundation (2024). "Nearshoring and the Future of North American Manufacturing."

Stiglitz, Joseph E. (2025). Globalisation as a Positive-Sum Force.

Hofman, André (2000). The Economic Development of Latin America in the Twentieth Century. Edward Elgar Publishing.

U.S. Bureau of Economic Analysis (BEA) (2024). "State and National GDP Comparisons."

Federal Reserve Bank of Dallas (2024). "The Texas-Mexico Economic Integration Report."

California Department of Finance (2024). "Global Economic Rankings: California vs. Sovereign Nations."

North, Douglass C. (1990). Institutions, Institutional Change and Economic Performance. Cambridge University Press.

Shatz, Howard (2023). "The Economic Ties that Bind California and Mexico." RAND Corporation.

Gruman, George (2024). "The Great Migration: Why Silicon Valley is Moving to the Silicon Hills." Forbes.

Public Policy Institute of California (PPIC) (2024). "Immigration and Economic Growth."

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Brookings Institution (2024). "NAFTA/USMCA: 30 Years of Integration."

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Federal Reserve Bank of Chicago (1997). "NAFTA and the U.S. Economy."

Weisbrot, Mark (2014). "NAFTA’s 20 Years of Regret for Mexico." The Guardian.

Wharton School, University of Pennsylvania (2014). "NAFTA: Benefits Outweigh Costs."

Vision of Humanity (2025). "Mexico Peace Index 2025: The Challenge of Drug Trafficking."

NUS Economics Society (2025). "Mexico’s Nearshoring Boom: Strategic Advantages."

Stiftung Wissenschaft und Politik (2025). "Mexico – From a Short Nearshoring Boom to US Security-shoring."

ResearchGate (2025). "Drug Market in Mexico and its Economic Impact."

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Comparative history, economic divergence, institutional analysis, geographic impact, political stability, resource management, human capital, immigration patterns, cultural identity, North American integration