The study started up with the objective to investigate the impact of trade liberalization on thernbalance of payments. In this endeavor, time series econometrics was applied to examine thernrelationship between trade liberalization and the balance of payments of Ethiopia. OLS was usedrnto obtain the long run relationship between the variables after checking the stationary of thernvariables under consideration. The existence of long run relationship was also tested byrnconducting an Augmented Dicky Fuller (ADF) test on the error term from the regression run tornobtain the long run relationship. Furthermore, the adjustment of the short run fluctuations tornthe long run equilibrium was found using an Error Correction Model (ECM). The result of thernregression was that the coefficient of the lagged error term was found to be statisticallyrnsignificant. The short run disequilibrium was found to adjust itself in less than a year. Inrnaddition different tests were conducted to test for the existence of hetroskedasticity,rnmisspecification and autocorrelation along with tests for the existence of ARCH. The results ofrnthe tests showed that none of these problems that would have made the results of the regressionrnunreliable exist. The results of the study showed that, the trade liberalization measures adoptedrnby Ethiopia have led to the deterioration of the balance of payments. The other indicator that wasrnadopted to capture the effect of trade liberalization on the balance of payments was the ratio ofrnforeign trade tax revenue to value of total international trade. The result of the regression wasrnthat there was a statistically insignificant relationship between the variables