Geography and institutions are the two main contenders to explain the fundamental causes of cross-country differences in prosperity. The geography hypothesis — which has a large following both in the popular imagination and in academia — maintains that the geography, climate, and ecology of a society’s location shape both its technology and the incentives of its inhabitants. This essay argues that differences in institutions are more important than geography for understanding the divergent economic and social conditions of nations. While the geography hypothesis emphasizes forces of nature as a primary factor in the poverty of nations, the institutions hypothesis is about man-made influences. A case is developed for the importance of institutions which draws on the history of European colonization.