The analysis of large-scale historical experiments, including the division of Korea and the colonial Reversal of Fortune, provides compelling evidence that institutions are the fundamental cause of long-run growth. The stark differences in prosperity across the globe are not primarily due to geography, culture, or luck, but to the institutional frameworks that shape economic incentives.

Therefore, development policy focused on proximate causes—such as simply funding capital projects or education initiatives—is destined for failure unless it is grounded in the fundamental work of building credible economic institutions. The inescapable policy implication of this analysis is that efforts to foster sustainable development must prioritize the building of economic institutions that secure property rights, enforce contracts, and create a level playing field for investment and innovation.

While the evidence clearly points to what is important, the next critical step for policy and research is to understand why different societies choose or end up with different institutional structures. Unpacking the political economy of institutional formation—understanding the forces that lead to the emergence and persistence of growth-promoting institutions—thus remains the central challenge for development economics and the most critical frontier for effective policy.