A country's national comparative advantage can translate into a competitive advantage for its firms provided exchange rates remain close to Purchasing Power Parities

Question

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Purchasing Power Parity (PPP) suggests that exchange rates should reflect the relative prices of goods and services in each country. When exchange rates remain close to PPP, a country's national comparative advantage can translate into a competitive advantage for its firms by allowing them to produce goods and services at a lower cost and sell them for a higher price in international markets. This is because the relative prices of inputs (such as labor and raw materials) in the country with the comparative advantage are lower than in other countries. However, if exchange rates deviate significantly from PPP, this can lead to distortions in international trade and affect the competitiveness of firms.

A Country's National Comparative Advantage Can Translate into a Competitive