Abstract
<jats:p>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 find that these effects disappear two years after the enactment of the licensing scheme. 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 implies that import licensing is ineffective as an industrial policy.</jats:p>