International trade and standards harmonization: The case of tractors and the OECD Tractor Codes

Although the trade effects of public and private standards-particularly for food safety and environmental quality-in agricultural markets have been well documented, much less is known about standards harmonization and international trade in tractors, a crucial input to agricultural production in most countries. We analyze the trade impacts of the long-lived OECD Tractor Codes-an integrated system of standardized tractor tests for performance and safety, certification, and mutual recognition agreements established in 1959. We hypothesize that this system increases tractor trade between members and possibly among members and nonmembers because it: (1) reduces duplication of tests across import markets, (2) lowers transaction costs of tractor trade disputes, (3) enhances manufacturers' risk management, and (4) boosts farmer demand through greater trust resulting from intergovernmental organization certification. Using bilateral COMTRADE data for 1962-2018, we estimate a structural gravity equation using Poisson pseudo-maximum likelihood methods to account for zero trade. After controlling for economic integration agreements and OECD membership, our benchmark analysis suggests trade is roughly one-third larger if both partners are members, a finding that is robust to considerations of gradual adjustment costs and reverse causality. We further find that this effect varies by countries' timing of accession and, to a lesser extent, level of economic development, though trade creation effects are inconclusive. A counterfactual analysis indicates that manufacturers and farmers in nonmember countries, including several middle-income and low-income countries, would benefit from membership. Our results have important implications for standards harmonization and international trade in agricultural machinery.