Abstract: Abstract: Under the background of the new normal of economy, China's economic development is changing from scale expansion to quality improvement. Improving technological innovation ability is the key to high-quality economic development, while transaction efficiency is an important factor affecting the division of labor evolution and economic development, and the three are closely related. This paper takes 283 prefecture-level cities in China as the research objects and uses panel data to study the impact of urban technological innovation ability on the economic development and the specific changes of this impact under different transaction efficiency. The following conclusions can be drawn: The ability of technological innovation in cities has a significant positive effect on the economic development, and the ability of technological innovation can play a more effective role in cities with high transaction efficiency. In order to promote high-quality economic development, it is necessary to encourage and deepen technological innovation, properly handle the relationship between the two and transaction efficiency, strive to improve the efficiency of urban transactions, and give full play to the catalytic role of transaction efficiency.