This paper argues that differences in economic institutions are the fundamental cause of differences in economic development. It presents two historical "quasi-natural experiments": the division of Korea into two parts with different economic institutions and European colonization, which highlights the role of institutions in shaping economic outcomes. The paper develops a framework for understanding why economic institutions differ across countries, emphasizing that they are social decisions shaped by political power and resource distribution. Economic institutions influence incentives and constraints on economic actors, shaping economic outcomes. Political power determines the choice of economic institutions, as groups with more political power tend to choose institutions that benefit them. Political institutions and resource distribution are key state variables in this dynamic system, influencing economic institutions and outcomes. The paper argues that economic institutions matter because they determine the incentives for investment, innovation, and resource allocation. The framework emphasizes the importance of political institutions in shaping economic outcomes, as they determine the distribution of political power and influence the choice of economic institutions. The paper also discusses the role of social conflict in shaping institutions, as groups with conflicting interests may choose institutions that benefit them. The paper concludes that economic institutions are endogenous and shaped by political power and resource distribution, and that understanding these dynamics is crucial for explaining cross-country differences in economic growth.This paper argues that differences in economic institutions are the fundamental cause of differences in economic development. It presents two historical "quasi-natural experiments": the division of Korea into two parts with different economic institutions and European colonization, which highlights the role of institutions in shaping economic outcomes. The paper develops a framework for understanding why economic institutions differ across countries, emphasizing that they are social decisions shaped by political power and resource distribution. Economic institutions influence incentives and constraints on economic actors, shaping economic outcomes. Political power determines the choice of economic institutions, as groups with more political power tend to choose institutions that benefit them. Political institutions and resource distribution are key state variables in this dynamic system, influencing economic institutions and outcomes. The paper argues that economic institutions matter because they determine the incentives for investment, innovation, and resource allocation. The framework emphasizes the importance of political institutions in shaping economic outcomes, as they determine the distribution of political power and influence the choice of economic institutions. The paper also discusses the role of social conflict in shaping institutions, as groups with conflicting interests may choose institutions that benefit them. The paper concludes that economic institutions are endogenous and shaped by political power and resource distribution, and that understanding these dynamics is crucial for explaining cross-country differences in economic growth.