Debebe, Sisay (PhD)Gebre, Eshetu2022-04-112023-11-042022-04-112023-11-042021-02http://etd.aau.edu.et/handle/123456789/31257The study provides empirical results to investigate the relationship between budget deficit, aid and economic in Ethiopia. Specifically the existence of the relationship between budget deficit, aid and economic growth in the country was tested with secondary time series data starting from 1990/91 to 2018/2019. Data from National bank of Ethiopia, ministry of finance and economic development and world development indicators collected through organizations' database and through letter requesting the same was used to conduct the study. VAR (vector Auto regressive approach) and vector error correction model (VECM) approach was used to investigate the relationship between budget deficit and economic growth while Harrod-Domer to investigate the relationship between aid and growth. The major findings of the study were positive relationship between budget deficit and economic growth both in the short run and long runs which supports Keynesians theory. However, aid has positive relationship with economic growth in the short run and negative impact in the long run. According to the VECM result a percentage change in aid results in 0.18% decrement of economic growth and a percentage change in budget deficit results in 0.16% increment of economic growth other variables being constant. The study suggests the increase of revenue by broadening tax base through establishing pragmatic system and expend on prioritized productive sectors like health, education, infrastructure sectors such as power, telecom, roads etc., so that it will enhance the return of both human capital and physical capital, which will go a long way in increasing the national income. Keywords: Budget Deficit, Aid, Economic Growth, GDP, Ethiopia, VAR, VECMen-USBudget DeficitEconomic GrowthGDP, Ethiopia,VAR, VECMThesis