Trade Restrictions as Effective Industrial Policy? Evidence from Indonesia's Import Licensing Scheme

Benedikt Heid, Laura Márquez-Ramos and Harry Wardana

No 12346, CESifo Working Paper Series from CESifo

Abstract: Industrial policy is on the rise. A key instrument used by governments is import licensing to protect domestic industries. However, evidence of its effectiveness is limited. Using customs and firm level data, we estimate the effects of the introduction of import licensing for iron and steel products in Indonesia in 2009. While we find that the number of incoming shipments of protected products is reduced, and that imports are sourced from fewer countries, the overall value or quantity of imports is not affected. At the same time, while domestic iron and steel producers increase their sales in the short run, we do not find long-lasting positive effects on their sales. Our results suggest that while import licensing imposes costs on importers who have to adjust their supply chains, sustained gains for domestic producers are limited. This suggests that import licensing is ineffective as an industrial policy.

Keywords: trade restrictions; import licensing; industrial policy; Indonesia; iron and steel (search for similar items in EconPapers)
JEL-codes: F13 F14 L52 L61 (search for similar items in EconPapers)
Date: 2025
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