Qayed, Syed (PhD)Hagos, Adiam2018-06-252023-11-042018-06-252023-11-042011-05http://etd.aau.edu.et/handle/123456789/3378The study started up with the objective to investigate the impact of trade liberalization on the balance of payments. In this endeavor, time series econometrics was applied to examine the relationship between trade liberalization and the balance of payments of Ethiopia. OLS was used to obtain the long run relationship between the variables after checking the stationary of the variables under consideration. The existence of long run relationship was also tested by conducting an Augmented Dicky Fuller (ADF) test on the error term from the regression run to obtain the long run relationship. Furthermore, the adjustment of the short run fluctuations to the long run equilibrium was found using an Error Correction Model (ECM). The result of the regression was that the coefficient of the lagged error term was found to be statistically significant. The short run disequilibrium was found to adjust itself in less than a year. In addition different tests were conducted to test for the existence of hetroskedasticity, misspecification and autocorrelation along with tests for the existence of ARCH. The results of the tests showed that none of these problems that would have made the results of the regression unreliable exist. The results of the study showed that, the trade liberalization measures adopted by Ethiopia have led to the deterioration of the balance of payments. The other indicator that was adopted to capture the effect of trade liberalization on the balance of payments was the ratio of foreign trade tax revenue to value of total international trade. The result of the regression was that there was a statistically insignificant relationship between the variablesenApplied Trade Policy AnalysisThesis