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Is it advisable to scale a raster image in Photoshop to the final size before embedding it in Illustrator or does Illustrator use the same bicubic algorithm as Photoshop when (up)scaling pixel images?

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Photoshop interpolates pixels. This means when you scale in Photoshop, Photoshop uses mathematical algorithms to determine either the best pixels to remove (if reducing) or the best color pixels to add (if enlarging). When you scale a raster image in Photoshop you alter the pixels of the image itself.

Illustrator does not interpolate pixels. Illustrator simply alters the outer dimensions of a raster image to fit the desired size. This will either condense pixels (if reducing) or stretch pixels (if enlarging). Illustrator does not alter raster images at the pixel level.

Both methods can be both useful and detrimental depending upon the project. However, it is exceptionally unwise to enlarge raster images beyond 100% within Illustrator if you are concerned about image quality. You should always use Photoshop to enlarge a raster image, never Illustrator.

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Having worked in the print industry for close to 20 years, I usually will import the image, unscaled, into AI, get it to the size I want, then, using the data from the links panel, I open the image in PS, rotate/scale it to the specs from AI, save it with a different name, then replace the link in AI. Hope this helps!

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Illustrator supports live links correct? i.e. edits to the linked file will propagate, similar to inDesign. (Photoshop supports linked files, but the link is really a snapshot and changes to the file outside of photoshop's awareness will not update). I am fairly certain that Illustrator sdoes this with illustrator files, I am unsure about raster links however. –  horatio May 8 '13 at 15:42
    
@horatio Illustrator will update changes to linked files.. or rather.. will ask the user if they want to update when a linked file has changed outside of Illustrator. And you're correct - Photoshop won't do this. –  Scott May 8 '13 at 17:21

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