The objective of the study is to asses the impact of trade liberalization on the trade balancernand economic growth. The study employs an Error Correction Mechanism (ECM) torninvestigate relationship between trade balances and trade liberalization variables using annualrndata over the period 1970- 2002. Moreover, a balance of payment constrained growth model isrnused to assess the effect of trade liberalization on economic growth of Ethiopia.rnThe empirical result of the descriptive and time series analysis suggests that tradernliberalization has not reduced the trade balance as theoretically expected. However, thernprocess has aggravated the trade deficit at least in the short run. The major explanation for thisrndismal trade balance is attributed to the imbalance between the country's exports of primaryrncommodities and its imports that are mainly composed of capital and consumer goods. Tradernliberalization efforts have aggravated the existing imbalance by inducing more imports thanrnexports. Moreover, the terms of trade variable is found to have profound effect on tradernbalance.rnrnThe analysis conducted with respect to the impact of trade liberalization on economic growthrnusing Balance of Payment Constrained Growth model demonstrates that the income elasticityrnfor import demand increased to 2.05 after liberalization as compared to 0.75 during the pre liberalizationrnion period. Moreover, the study finds out that the actual growth rate has beenrnconstrained by the Balance of Payment position after trade liberalization.rnAs a whole, Trade liberalization per se did not improve the trade balance and economicrngrowth, which can be partly attributed to the structure of exports and imports. Hence, thernma in policy implication of the study is that the country should improve the structure ofrnproduction and income elasticites of demand for exports, which involves the diversification ofrnthe existing primary commodity exports into manufactured goods.