Abstract The paper builds a mathematical model and probes the mechanism of institutional transition, economic growth and business cycle in depth with verification by empirical analysis. The findings indicate: firstly，In the course of the institutional transition, long term economic growth is pulled mainly by private investment rather than government investment; secondly，if the investment impulse of state-owned enterprises becomes smaller, the difference between the volatility of state-owned enterprises and private enterprises in economic activity is smaller, the impact on the business cycle is also smaller; thirdly，if the state-owned economic sectors account for the smaller proportion of the national economy, the impact of business cycle is smaller.
2012, Vol. 1 
