This paper provides an analytical account of the evolution and nature of formal and informal institutions in Afghanistan from 1880 to 1992 and analyzes their implications for the country’s trajectory of economic development. Using an analytical institutional approach and drawing from archival materials, we argue that there have been minimal quantitative improvements in the emergence of some crucial institutions of property rights and contract enforcement mechanisms over the study period in Afghanistan. However, there is no evidence of significant improvements in the average quality of institutions in this country. We contend that the persistence of exclusive institutions and consequent economic stagnation in Afghanistan can be attributed to two interlinked factors. 1) the recurrent institutional discontinuities in the process of institutional evolution that hindered the prospects of gradual transformation. And 2) the reform-limiting role of the traditional elites and conservative elements within the de jure courts who, favoring the status quo, resisted modernizing reforms when, at times, the state allowed for such improvements under extractive institutions. The paper also contributes theoretically by elucidating how informal institutions and economic activities grow as a by-product of fragile and exploitative de jure institutions.