Although there is considerable evidence on the link between FDI and export in developingrncountries, the causal relationship of these variables still remain an important question.rnSignificantly, there is an overall agreement that inward FDI has a positive effect on the hostrncountry's export performance. However, the results on this issue were inconclusive andrnrequire more evidence. The Ethiopian case is more relevant to this topic because Ethiopiarnconsistently encouraged FDI inflows. The objective of this paper is to investigate thernremaining barriers of FDI and to examine the effects of inward FDI on Ethiopian exportrnperformance from 1974 to 2006. The major hypothesis is that inward FDI has had a positivernimpact on Ethiopian export performance.rnThe paper attempts to examine the possible effect of FDI and export in Ethiopian economyrnwith a focus on the relationship between FDI and host country exports. It has reviewed thernevolution of various FDI regimes and linked them with long term FDI performance andrnexports. The empirical part of the paper examines the association between FDI and hostrncountry exports. A cointegration analysis in a multivariate VAR model is applied forrncausality test. The Johansen cointegration test procedure and error correction mechanism arernemployed to capture the linkage between the variables interest. The results of the regressionrnanalysis provide much support for the link between export and FDJ in Ethiopia. It shows notrnonly a long run relationship between the variables but also the existence of causality in thernshort run. Thus, it is an evidence for bi-directional causality between FDI and export. It alsornindicates that ,FDI inflows have a significant and positive effect on the host country exports.rnHence, providing more incentives to export oriented foreign firms into a more strategic corernis a plausible means to stretch the positive linkage of FDJ and export performance