Should PPPs always be used rather than exchange rates in making international comparisons?
It would be a mistake to think of PPPs as a complete substitute for exchange rates in making international comparisons. In fact, they are complementary because PPP based comparisons are useful in specific situations, such as when comparing output levels or productivity levels between countries, while exchange rate based comparisons are more appropriate in others. For example, if an analyst wanted to work out how much could be imported with the proceeds from a particular level of exports then it would be necessary to use exchange rates rather than PPPs.
