Abstract – This paper provides evidence of the causal impact of oil discoveries on local development. Novel data covering the universe of oil wells drilled in Brazil allow us to exploit a quasi-experiment: Municipalities where oil was discovered constitute the treatment group, while municipalities with drilling but no discovery are the control group. The results show that oil discoveries signicantly increase per capita GDP and have positive local spillovers. Workers relocate from informal agriculture to higher value-added activities in formal services, increasing urbanization. The results are consistent with greater local demand for non-tradable services driven by highly paid oil workers.

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