Madrid has captured advantages of globalisation by becoming a Metroregion of 6 million, which attracts foreign workers and firms. Since the mid- 1990s, the capital region of Spain has enjoyed one of the highest expansions in population and economic growth within Europe and among OECD metropolitan areas. From 1995-2005, the metro-region has registered an average annual growth rate of 3.7%, above Spain’s 3.3%, and growing at twice the average of the European Union for the same period. This economic boom has made the metro-region a magnet for workers, both at the national and international level (population grew by 15.4% over 2000-2006 in Madrid), with an influx of foreign migrants, mainly coming from Latin American countries. From 2000 to 2006, 760 000 new jobs were created and unemployment declined from 11.6% to 6.5%. Today, the capital region concentrates more than 13.5% of the national population and generates above 17% of Spain’s output. Madrid is the Spanish financial centre, concentrating around one-quarter of total savings and responsible for around two-thirds of both total inward and outward foreign investments (from 2002 to 2004, Spain was the 6th largest recipient of FDI worldwide and the 5th largest in Europe).

The Madrid metropolitan area has reached a high level of international competitiveness during the last decade. Once a regional capital with a central role in Spain but relatively isolated from the rest of Europe, Madrid is becoming a powerful hub within the global economy. Over the last eight years, the economic growth of the metro region has been more than double the average of the euro zone. Madrid has become a large metropolitan region, home to 3 million workers and more than 450 000 firms, several of which are headquarters of some of the most competitive companies in the world. Broadly speaking, there are three factors underpinning this good performance: (i) a large supply of labour provided both by immigrants (among which a large number of Spanish-speaking natives from South America) and young educated fixedterm workers; (ii) the presence of first-class transportation facilities, such as Barajas airport, that enable Madrid to mitigate the challenge of being a peripheral European region; and (iii) the growth dynamic itself, in response to the stability of the economy due to the introduction of the euro, which has generated positive expectations among population promoting local demand. Of course, behind the regional good performance there is a “country effect” that proves difficult to isolate from the local comparative advantage. Although this phenomenon can be observed in many OECD metro-regions, in Madrid it has a larger importance. The historical concentration of the national investment within the Madrid Metro-region has played a key role in promoting Madrid’s international accessibility as well as the localisation of some knowledge intensive industries such as aerospace.

Madrid has benefited greatly from democracy and globalisation. Once the capital city of an economically and politically isolated country, Madrid has become an important international hub. In terms of economic growth its performance has been among the best within OECD urban regions during the last decade. Madrid has been able to benefit from the overall good performance of the Spanish economy, as is reflected in the production growth figures, and in the level of almost full employment. Ongoing structural macroeconomic reforms, characterised by the streamlining of the regulatory framework, the increased exposure of product and factor markets to international competition, and prudent fiscal and monetary policies, have stimulated a gradual move towards the technological and managerial modernisation of Spanish enterprises in general, and those located in metropolitan regions in particular. In addition, as a capital city, Madrid has also benefited from a relatively large share of the total central government resources that completed regional and local governments’ efforts for the improvement of urban infrastructure. In recent years the city has also been an important focal point for the increasing flows of immigration and foreign investment that are occurring in the country. This overall scenario of growth, combined with the cities' capacity to attract immigrants, new investments and firms, have created a positive environment, and a perception amongst policy makers that Madrid is competing with the main cities in Europe. Of course, such a good achievement has generated positive expectations among the local community. The goal of the development strategy implemented by the city government, for instance, is to transform Madrid into the most important metropolitan region in Europe only after Paris and London.

Madrid’s success has been linked with its institutional resources since the end of Franco’s dictatorship. Before the first democratic elections in 1979, the central government controlled the activities of municipalities and appointed the mayors. With the creation of autonomous communities (1979-1983) and the democratisation of local governments in 1979, a more organised and pro-active approach towards the development of the region has accomplished in Spain. In Madrid, a specific case where the region fits approximately within the functional area, the regional government has managed to play the role of a metropolitan government with strong legitimacy and resources. This is not the case in many OECD metroregions that lack a metropolitan governance framework. Empowered with strong financial, political and legislative competencies, the region has created a very good infrastructure and delivered a number of policies that have contributed to Madrid’s recent economic success. This model has been praised by many scholars and made the envy of many other stakeholders in metropolitan areas that are confronted with the lack of a strong and legitimised metropolitan structure.