Most studies about the relationship of foreign aid and economic growth are usually cross country studies which often found inconclusive or mixed results. On the other hand, there is very little in the empirical literature which looks on a single country time series data and mostly on focused Sub-Saharan Africa. This paper deviates from the mainstream empirical literature by investigating the aid-growth relationship on Ethiopia. Using a growth equation inspired from an outward-oriented

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... al production function and cointegration methodology this paper finds the existence of a long term relationship between foreign aid and economic growth for Ethiopia. This paper found that foreign aid has a negative effect on economic growth in the short run and becomes positive in the long run. Using Granger Causality technique this study also found that there is Evidence to support the presence of unidirectional causality of foreign aid to economic growth for Ethiopia.