Endogenous Capital Augmenting Technical Change and the Shape of Aggregate Production Function

In a neoclassical growth model with a constant elasticity of substitution production function, the conventional wisdom claims that capital augmenting technical change is labor biased and ceteris paribus increases the labor share when capital and labor are gross compliments. We construct an endogenous biased technical change model to challenge that interpretation. We show that capital augmenting technical change is capital biased and ceteris paribus decreases the labor share irrespective of the size of the elasticity of substitution. And we also provide a microfoundation for the induced aggregate production function to take the form of AK in the long-run.