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

Author

Listed:
  • Benedikt Heid
  • Laura Márquez-Ramos
  • Harry Wardana

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.

Suggested Citation

  • Benedikt Heid & Laura Márquez-Ramos & Harry Wardana, 2025. "Trade Restrictions as Effective Industrial Policy? Evidence from Indonesia's Import Licensing Scheme," CESifo Working Paper Series 12346, CESifo.
    • Handle: RePEc:ces:ceswps:_12346
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    Keywords

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics

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