5 March 2018The leader-follower model of Barro and Sala-i-Martin [1997] is modified by assuming that as the technological distance increases the productivity of R&D (i) in the follower region first increases then falls, and (ii) it falls in the leader region for extreme distance. The model predicts the possible emergence of two stable steady state equilibria. The economy can potentially get stuck in an equilibrium characterized by higher interregional inequality and a permanent common long-run growth rate below its potential. Free factors movement exacerbates this problem.