# **2 Institutional Context**

## **2.1 Transit System**

In the second half of the twentieth century, Mexico City had severe public transport problems, with congested main roads and highways, particularly in the downtown area. In 1967, the Government established a decentralized public office to build and operate a rapid transit system of underground trains to facilitate public transportation in Mexico City. Two years later, on September 4, 1969, the Government inaugurated the first line. Today, the system has grown into 12 lines with 195 stations, for a total length of 128.4 miles. The subway is the largest in Latin America and the second-largest system in North America after the New York City Subway.

The Plan Maestro 1985-2010 guided the expansion of the subway. It set the mobility goals that the transport system needed to satisfy over the long run, based on best practices in urban development and the operational constraints of the project. The Plan Maestro 1985-2010 underwent some modifications from what the Government had initially planned. For example, Line B was originally Line 10 and experienced extensive changes (Ramírez et al., 2017). These modifications responded mainly to changing demand patterns for transportation in Mexico City, which forced the Government to redesign some lines. Part of my empirical strategy is to compare the unplanned modifications to the subway lines with the original and un-executed plans.

In my empirical strategy, I exploit the construction of line B. This line had the distinct feature of connecting informal workers in remote areas with jobs in the central business district (CBD) of Mexico City. It was inaugurated in 2000, and most of it was initially planned as part of Plan Maestro 1985, which reduces potential endogeneity concerns between the opening of the new stations and local demand/supply shocks. Moreover, the construction of the line also experienced multiple delays given changes in the regulatory framework and the 1994 financial crisis.<sup>11</sup> The line is approximately 20 kms long and has 21 stations. It connects the metropolitan area of the city with some adjacent municipalities in Mexico State, such as Ecatepec de Morelos and Ciudad Nezahualcoyot. These areas are characterized by high poverty rates, low education, and high informality rates.<sup>12</sup> As a result, line B has the distinct feature of connecting informal workers with formal jobs. To date, it is the line with the fourth-highest number of passengers in the network. The total cost of this line, including the net present value of service operations, maintenance, and other overheads, was approximately $2,900 million in 2014 USD dollars, which represents 0.7% of the total GDP of Mexico City.

Figure 1 depicts a map of the Mexico City subway system in 2000, highlighting the lines that I use in my empirical strategy. Line B (purple) connects the northeastern area, including locations in the State of Mexico, with the center of the city. I also use line C and line 12 for robustness checks. Line C (green) was planned as a feeder line in the early 2000s, similar to line B; however,

> 11The initial plan of the Government was to finish the line in 1997. However, they finished the construction of the entire line in 2002.

> 12In the Appendix, I relate census tract characteristics before the shock to line B to show this result.

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