Abstract: A logical framework and method of quantitative analysis is required for the relationship between institutional reform and economic growth. From the perspective of factor input-output relationship, the idle status, waste and underutilization of resources and factors under the distorted system are observed; and the institutional surplus scale is defined and calculated. The surplus is fully utilized through the dual institutional transition, that is, the reform of market-oriented allocation of resources and factors. This is the growth potential brought about by the reform. This article attempts to propose and define an important category in the transition economics, namely institutional surplus. Due to distorted systems such as household registration system, a huge institutional surplus labor has formed in China’s urban and rural areas, especially the tremendous institutional surplus of land due to the planned allocation of land.