Abstract: This paper aims to reveal the effect of innovation policy on regional economic development. Through the effect of innovation policy on TFP and its spatial spillover effect in 30 provincial regions of China from 2001-2017, we find innovation policy has a significant impact on TFP, and this effect is mainly driven by labor distortion. The government funds play the most important role comparing with other policy tools. And innovation policy not only has a significant direct effect, but also has a significant spatial spillover effect. In other words, the innovation policy will not only directly affect the TFP of the region, but also affect the TFP of neighboring regions. This paper affirms the role of the innovation policy in stimulating and guiding the regional economic development, and its demonstration role for other regions.