Like any other developing countries, aid can affect economic growth ofrnEthiopia, such as through its impact on government behavior, investment andrnsaving. Government expenditure can also raise growth by increasing therngeneral level of economic activity. As much of aid is given to the government, itsrneffect on growth and poverty reduction is likely to be properly mediated byrngovernment fiscal policy that makes the analysis of fiscal impact of aid and itsrnrelation ships with growth more interesting.rnThe main objective of this study is to examine the fiscal impact of aid and itsrnrelationships with growth in Ethiopia using annual time series data over thernperiod 1960/61-2004/05. Multivariate cointegration and vector errorrncorrection model (VECM) are estimated to establish the short and long runrnrelationship between foreign a id, fiscal aggregates and economic growth. Thernmain findings show that foreign aid (both grant and loan) has significantrnpositive impact on long-run growth of output and expenditure. Governmentrnexpenditure is also found to have a positive long-run influence on growth, andrnthere is no evidence that shows tax revenue retards growth in Ethiopia.rnAlthough both grants and loans have positive long-run influence on growth, thernpolicy implication is that foreign aid to Ethiopia could better if given in the formrnof grants and associated with fiscal discipline because foreign aid which comesrnin the form of loan may be transferred to debt burden problem as country'srndebt stock has accumulated to unsustainable level.