Institutional innovation has always acted a pivotal part in the vigorous development of China's economy. This study quantifies system innovation from four dimensions: fiscal policy, industrial policy, educational and opening up level, and uses provincial panel data from 2006 to 2019 to perform regression measurement to examine the relevance of system innovation and regional economy development. Taking into account the spatial correlation, after passing the Moran test, the spatial Durbin model is introduced for measurement. The obtained research results show that the current fiscal policy and education level cannot promote economic development, and the industrial policy and opening up level have significantly promoted regional economy development. Nevertheless, education and foreign policy have a significant negative effect on the economy of neighboring regions. The sample is categorized into three major regions: East, Central, and West, and the results show that the impact of various factors of institutional innovation on the economy of the three major regions is significantly heterogeneous.