Institutions are a very important part of development. In the concept of institutional economics, in fact, institutions are the main factor for whether development does or does not happen in a country. If the institutions are weak, or do not work in the way they are intended to, they may cause development to be slower than it would be if the country had better institutions. In fact, the wrong institutions may even have a dragging effect on a country's development, slowing it down instead of helping it along. This most often happens when the institutions are used mainly by the government as a way of squeezing money out of businesses and people.
What do we mean by institutions? In everyday speaking, institutions mean all sorts of public and private organizations. Banks, corporations, and universities are all institutions. However, institutional development economics is mainly dealing with government institutions. This means not only ministries or departments where government policy and decisions are made. Government institutions also include the courts and the legal system.
An idea that comes out of institutional economics, though, is that institutions are not limited to formal organizations. According to one source, "an institution is defined as the set of formal and informal rules which constrain and govern the interaction of agents subject to that institution" (Harriss, Hunter, and Lewis, 1995, pp. 71-72). So, institutions also seem to mean the habits and attitudes of government officials and policy makers. If government officials are expected to work hard at their jobs, that can be thought of as an institution. Or, if government officials regard their offices mainly as a chance to make money for themselves, that is also an institution. So, institutions include habits of government officials -- what they expect to get out of their jobs, and what their superiors expect them to do.
All of these institution...