Financial Liberalization emphasizes on the leading role of market forces in the financial sector ofrnthe economy and it is one of the debatable issues in the world economy. However, it is far fromrnclear how financial liberalization actually affects the economy in general and the financial systemrnin particular. Thus, this study aims to empirically examine the impact of financial liberalization onrneconomic development in Ethiopia over the period of 1984-2014. In doing so, the ARDL approachrnto Co-integration and Error Correction Model were employed to investigate the long run and shortrnrun relationships. Accordingly, the empirical results obtained from the study indicate that financialrnwidening has contributed significantly to the increase in saving and the level of economic growth.rnEven though, the total deposit happens to generate more investment; there is shortage of supply ofrncredit. In addition, the study indicates financial widening and credit to the private sector exhibitedrna significant positive association with financial development while total banks credit bearing arnsignificant impact on industrial development. However, the overall financial reform showedrninsignificant association both with economic growth and industrial development. The efficiency inrnallocating financial resources show significant positive association with share of banks credit tornthe private sector, however, the overall financial reform has positive insignificant impact onrnefficiency of resource allocation. The contribution of financial sector after the deregulation has arnmixed result on welfare. In terms of catalyzing employment opportunity, financial widening and thernoverall liberalization policy measure have played a positive role while the financial developmentrnhas no significant impact on employment creation. Financial widening has significant positivernimpact on poverty alleviation while the overall policy measure has insignificant impact on thernimpoverished. Consequently, the result of the study indicate the overall financial liberalizationrnmeasure actually decrease the likelihood of financial instability and indicates the direction ofrncausality going from economic growth to financial development proving the demand leadingrnhypothesis, which in turn portrays the heavy involvement of government in the financial sector.rnKey words: Financial liberalization, Financial liberalization index