Why We Adjust Costs for PPP

Pedestrian Observations

The Transit Costs Project adjusts all construction costs for purchasing power parities. This means that, for example, a Chinese subway is converted into dollars not at the exchange rate of $1 = 6.7¥, but at the PPP rate of $1 = 4.2¥; this means that present-day Chinese subways look 1.5 times more expensive in our analysis than in analyses that use exchange rate values, and projects from 10 years ago look twice as expensive. I believe our choice is correct, and would like to explain why, since it has gotten some criticism from serious people, who’s prefer exchange rates.

Local costs

I started this comparing mature developed countries. The US and Europe have largely separate markets for construction, and so American work is almost entirely done in dollars and European work in euros (or pounds, or kronor, etc.). Japan is likewise very local and so is China. In that…

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