Woldehanna, Tassaw (Dr)Lemma, Meheret2021-08-022023-11-042021-08-022023-11-042005-07http://etd.aau.edu.et/handle/123456789/27542The objective of the paper is to test the hypothesis that aid through funding pro-poor public expenditures can improve welfare in Ethiopian. An index of pro-poor expenditures has been constructed to analyze this transmission mechanism. In order to obtain a coefficient on aid variable that includes its indirect effect through public expenditure allocation a regressor is constructed. The estimation is conducted based on the annual data between 1965/66 and 2001/02 using the johanson maximum likelihood Procedure. The empirical analysis supports the hypothesis regarding aid effectiveness on poverty through funding pro-poor expenditures. On the other hand the result shows though domestic revenue significantly contributes in financing pro-poor public expenditure, non aid financed pro-poor public spending is rather found to be inefficient in improving welfare. The result further reveals the impact of growth on welfare is insignificant implicating that growth by its own accord is not enough in EthiopiaenAid EffectivenessPovertyPro-poorSpending,EthiopiaThesis