Estiphanos, Girma(Dr.)Bizuayehu, Anteneh2021-07-282023-11-192021-07-282023-11-192005-07http://etd.aau.edu.et/handle/12345678/27436The objective of the study is to asses the impact of trade liberalization on the trade balance and economic growth. The study employs an Error Correction Mechanism (ECM) to investigate relationship between trade balances and trade liberalization variables using annual data over the period 1970- 2002. Moreover, a balance of payment constrained growth model is used to assess the effect of trade liberalization on economic growth of Ethiopia. The empirical result of the descriptive and time series analysis suggests that trade liberalization has not reduced the trade balance as theoretically expected. However, the process has aggravated the trade deficit at least in the short run. The major explanation for this dismal trade balance is attributed to the imbalance between the country's exports of primary commodities and its imports that are mainly composed of capital and consumer goods. Trade liberalization efforts have aggravated the existing imbalance by inducing more imports than exports. Moreover, the terms of trade variable is found to have profound effect on trade balance. The analysis conducted with respect to the impact of trade liberalization on economic growth using Balance of Payment Constrained Growth model demonstrates that the income elasticity for import demand increased to 2.05 after liberalization as compared to 0.75 during the pre liberalization ion period. Moreover, the study finds out that the actual growth rate has been constrained by the Balance of Payment position after trade liberalization. As a whole, Trade liberalization per se did not improve the trade balance and economic growth, which can be partly attributed to the structure of exports and imports. Hence, the ma in policy implication of the study is that the country should improve the structure of production and income elasticites of demand for exports, which involves the diversification of the existing primary commodity exports into manufactured goods.enBalance and Economic GrowthTrade LiberalizationThesis