Against the backdrop of global economic integration and rapid technological advancement, small and medium-sized industrial enterprises (SMEIs) have emerged as a crucial force in the national economy, with technological innovation serving as the core driving force for their development. Exploring the driving effects between the two is of great significance for policy formulation and enterprise development. This study constructs an indicator system for evaluating the technological innovation and development level of SMEIs. It employs classical cycle theory and the growth rate cycle composite index to quantitatively assess their capabilities and levels, and utilizes impulse response function analysis and variance decomposition to dissect the driving mechanisms. The findings are as follows: (1) In the classical cycle, both the technological innovation input and output indices exhibit an overall upward trend, with the output index growing at a faster pace. After a brief decline in the enterprise scale index from 2017 to 2018, growth resumed due to policy support. (2) The growth rate cycle reveals that there is a lag effect in the fluctuations of the growth rate cycle indices for input and output. The fluctuation trends of enterprise scale and innovation capability are consistent, but the scale fluctuations are more pronounced. (3) Impulse response analysis indicates that the initial impact of technological innovation input is moderate. An initial increase in the output index leads to a temporary fluctuation in enterprise development followed by an upward trend and can promote the formation of a virtuous cycle in the input index. (4) Variance decomposition shows that both the input and output indices have a four-period lag effect on enterprise development. The variance contribution rate of the output index (approximately 28%) is higher than that of the input index (6%), indicating a more significant driving role of output. Both governments and enterprises should attach great importance to technological innovation. While increasing investment, they should strengthen the monitoring of technological achievement transformation, promote technological innovation output, and drive the steady development of SMEIs.