How does institutional economics explain development and underdevelopment? Poverty has declined drastically over recent decades, but the proportion of the global population living in high-income countries with strong institutions (14%) has barely budged. This chapter summarizes how institutionalists address four questions: Which institutions must function effectively for countries to converge with high-income countries? What are the obstacles to developing such well-functioning institutions? How can countries improve their institutions? And can outsiders, including foreign aid agencies, help them develop? While research has made much progress in answering these questions, persistent puzzles remain.