The local effect of extractive industries on households’ living standards is viewed in this study as a signal of non-homothetic preferences for education. Hydrocarbonbased industries are intensive in capital and high-skilled labor; our theory predicts that further development could increase investment in education due to local employment opportunities. However, investment in education can generate surplus skilled labor. Under imperfect markets, these constitute dynamic social costs with weak backward integration and ambiguous implications on welfare. Using annual household data from the Niger Delta between 2010 to 2016, we employ a geographic difference-in-difference estimation that exploits spatial and temporal variation in oil production and locations. We find that costs of living are higher by proximity to oil fields but find that the mechanism is via non-homothetic preferences for education. We find inconclusive evidence on other welfare indicators; limited employment opportunities in non-oil sectors may explain the weak backward linkages and potential positive spillovers. JEL Codes: O13, O18, Q32, J24, I2, R20