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Abstract
Recently, discussion about the appropriate estimation of gravity trade models
has started in agriculture. Here, we are going to review recent developments in
the literature. It appears that fixed effects Poisson Pseudo Maximum Likelihood is
not only the only consistent estimator [Santos Silva and Tenreyro, 2006] but also it
already allows for a structural fit [Fally, 2012]. Fixed effects in conjunction with the
adding-up property of Poisson Pseudo Maximum Likelihood - which has been so far
neglected - can be harnessed to directly deduce multilateral resistance indexes (i.e.
general equilibrium effects) from reduced-form estimation. This innovation made by
Fally will ease comparative statics and incidence analysis, making Poisson Pseudo
Maximum Likelihood even more preferable in practice.