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We then develop a generalized Hausman\u2013Taylor estimation methodology, and apply our proposed estimation technique to an analysis of the gravity equation of bilateral trade flows among 15 European countries over 1960\u20132001. Empirical results demonstrate that our proposed approach provides more sensible results than the conventional approach based on fixed time dummies. These findings may highlight the importance of allowing for a certain degree of cross\u2010section dependence through unobserved heterogeneous time\u2010specific effects; the resulting estimates would otherwise be severely biased. 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