Will fast growing emerging economies sustain rapid growth rates until they 'catch-up' to the technology frontier? Are there incentives for some developed countries to free-ride off of innovators and optimally 'fall-back' relative to the frontier? This paper models agents growing as a result of investments in innovation and imitation. Imitation facilitates technology diffusion, with the productivity of imitation modeled by a catch-up function that increases with distance to the frontier. The resulting equilibrium is an endogenous segmentation between innovators and imitators, where imitating agents optimally choose to 'catch-up' or 'fall-back' to a productivity ratio below the frontier.
