Based on the theory of new economic geography and endogenous growth, this paper constructs a local spillovers model under the restriction of trade freedom, and explores the mechanism of innovation spatial diffusion and agglomeration on the influence of high quality economic development. The study shows that symmetric equilibrium is the only interior point equilibrium of the model. And there is a unique support zone of trade freedom in the case of corner equilibrium. In this case, the smaller the transportation cost is, the more concentrated the skilled labor force, R&D department, manufacturing sector and innovation activities tend to be. Meanwhile, the degree of spatial diffusion of innovation increases, and the disadvantage of peripheral regions in R&D and innovation are weakened. From the perspective of growth and welfare evaluation, the spatial diffusion of innovation has no effect on the economic growth of the entire economy under the constant stock of skilled labor. However, when the regional economic growth originates from the agglomeration of mobile skilled labor, the skilled labor and ordinary labor in the central area always prefer the agglomeration state. If and only if the effect of innovation spatial diffusion is large or the agglomeration rent is small, the ordinary labor in the periphery will also prefer the agglomeration state. Therefore, reducing transportation costs and increasing the degree of trade integration are conducive to enhancing the diffusion effect of innovation space, reducing agglomeration rents, improving the welfare level of the whole labor force, and thus promoting high quality economic development.