I agree here w/ commenter Ted -- both matter. What's interesting to me is that the debate is not symmetric. Those, like myself, who point out that geography is surprisingly important do not say that institutions are unimportant also, but many, like Acemoglu, who favor institutions do claim that geography is irrelevant, and label anyone who thinks otherwise "geographic determinists".
These people need to start looking at maps. Economics doesn't happen in a vacuum.