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Mr. Tiago Cavalcanti, Daniel Da Mata, and Mr. Frederik G Toscani

period of analysis, which employed a substantial number of people with very low productivity. In places with oil discoveries, we can observe a move of these informal agricultural workers to an expanding services sector. Our results indicate that this is the main positive externality from oil discoveries. Overall, places which discovered oil have larger, more productive services sectors, probably driven by an increase in local demand for non-tradables from oil workers and the oil-producing firms. The increased demand for labor leads to more workers being pulled into the

Mr. Tiago Cavalcanti, Daniel Da Mata, and Mr. Frederik G Toscani
This paper provides evidence of the causal impact of oil discoveries on development. Novel data on the drilling of 20,000 oil wells in Brazil allows 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 significantly increase per capita GDP and urbanization. We find positive spillovers to non-oil sectors, specifically, an increase in services GDP which stems from higher output per worker. The results are consistent with greater local demand for non-tradable services driven by highly paid oil workers.
Mr. Tiago Cavalcanti, Daniel Da Mata, and Mr. Frederik G Toscani
Calder Jack

firms who would measure output from their own (multiple) refineries and pay the tax would be considerably smaller. CT based on production measured at the well-head would involve a larger number of taxpayers (oil producing firms), and a much larger number of measuring points, and would have no obvious advantages. CT on coal could be applied to output from mines measured at the mine mouth (and again to imports measured at import points). There are around 1,300 US coal mines, but a much smaller number of producer firms who would measure the output from their mines

International Monetary Fund. Research Dept.

hedge when they are concerned about adverse movements in prices. Furthermore, oil-producing firms are more likely to hedge when the profit margin between the product sale price and the marginal cost is small. Finally, credit rating and the health of balance sheets are important factors in hedging decisions, because they affect the firm’s ability to borrow to smooth a volatile cash flow. Impediments to more extensive financial hedging range from governance issues within firms to inadequacies of the derivatives markets. First, a business manager’s hedging activities