CPI Bias vs. the Penn Effect

How much richer is the First World than the Third?  If you simply compare nominal GDP per capita, the ratio is staggering.  By this measure, Americans are over twenty times richer than Haitians.  The standard view in macro, however, holds that these ratios are overstated.  Largely due to non-traded goods, the cost of living is higher in rich countries.  To properly compare the First World to the Third, this argument goes, one must do a Purchasing Power Parity adjustment.  When you do so, the rat...