This paper examines the governance of local productive systems by articulating two fundamental concepts from geographical institutionalism: path dependency and contingency. We identify internal and external contingencies that have significantly impacted the development trajectory of pyrotechnic production in Tultepec, Mexico, giving rise to governance dynamics characterised by a lack of co‐ordination among local producer associations. Consequently, the main local institutional arrangements are controlled by particular interest groups. This limits the participation of local actors in defining national regulations relating to pyrotechnic production, resulting in a vertical/centralised law mainly defined by the state. We argue that improving the governance of the pyrotechnic productive system in Tultepec requires the co‐ordination of private and public actors at different territorial scales, in order to build up an inclusive regulatory framework which can take into consideration the diversity of local producers.