| Abstract | This article introduce institution as a discrete variable into the CES production function, and build an endogenous growth models containing institution variable. Unlike capital and labor inputs, institution affects production by the elasticity of substitution and technical efficiency. Theoretical analysis shows that, in addition to the growth of factor inputs, institution and technical efficiency change are also important factors affecting economic growth. Based on the theoretical framework, we analysis the economic development process of China. The empirical analysis shows that, under the central planning system of China, the substitution elasticity near zero. The institution reform made the elasticity of substitution up, as well as investment and the technical progress become power of economic growth in China. Theoretical and empirical analyzes show that China can still continue to reform and further make substitution elasticity up, thus providing power for future economic growth, but China's future economic growth has been impossible to continue the previous model, the main direction of investment need from the product manufacturing to research and development, make the technical progress become a main power of economic growth. |