| Summary: | Palm oil emerges as an important raw material needed in many fields from food to chemical
industry and energy sector. Indonesia is the largest palm oil producer in the world and has great
potential to market this domestically and internationally. With a huge production capacity, the
inability to effectively use income obtained from export of this product may have an adverse effect on
the economic growth rate. This issue is called the Dutch Disease in literature. In this study, it is
proposed that the validity of the Dutch Disease needs to be investigated asymmetrically in Indonesia
during the period of 2000:Q1-2021:Q4. Using “The Nonlinear Lag Distributed Autoregressive
Model” (NARDL) suggested by Shin et al. (2014), it is found that the positive shocks to palm oil price
have a positive impact on real effective exchange rate. The findings indicate that the Dutch Disease
hypothesis is valid in Indonesia. In this context, the income increase in Indonesia, leading to the
diversification of goods by transferring more resources especially to the high-tech manufacturing
industry, and the strengthening of the institutional structure, thus ensuring better management of
resources, and transferring more resources to education and science will provide a solution to the
Dutch Disease experienced in this country.
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