The roles of Crude Palm Oil (CPO) commodities in indonesian economy granger causality analysis approach

Crude palm oil (CPO) commodity is one of Indonesia’s main commodities to contribute to foreign exchange earnings from exports in global markets. The objective of this research is to describe the correlation between various variables that influence the role of CPO commodity in Indonesian economy. The variables in this research are total world product, CPO price, CPO production, CPO export, trade exchange rate (ToT) and exchange rate. The research method used is Granger Causality method to know the correlation between variables in the research and explain its implication in the framework of economic theory in the context of Indonesian economy. The data were taken from several credible sources such as BPS (the Central Statistics Agency) and Bank Indonesia from the first quarter of 2004 until the third quarter of 2016. The results of this study indicate that some variables have correlation which are CPO exports to CPO price, CPO production to CPO export, CPO export to CPO production, CPO production to world total product (world’s GDP), CPO production to CPO price and exchange rate to trade exchange rate (ToT). The conclusion of the results of this research shows that the CPO commodity affects the Indonesian economy through its influence on the related economic variables. Based on this study, the recommendation is that it is necessary to formulate an integrated policy that can improve the productivity of CPO commodities and to create a conducive economic climate through macro-economic stability in order to enhance the role of the CPO commodity for Indonesia’s economic growth.