This study analyzes the impact of foreign aid on economic growth in Ethiopia based on time series annual data for the period of 1974 to 2017. Autoregressive distributed lag Approach to Co-integration and Error Correction Model was applied in order to investigate the long-run and short-run relationship between dependent and the independent variables. The empirical results from econometrics model reveal that foreign aid has negative impact on economic growth in both long run and short run and statistically significant at 1 percent significant level. The negative and significant error correction term shows that the short run disequilibrium adjusts to its long run equilibrium by 84.6 percent each year. The important policy implication of this study suggests that more effort has to be made to improve the negative impact of foreign aid, mainly because of existence of poor institutional arrangement that contributes the fund to unproductive sectors. The government has to ensure, a close monitoring and consistent management strategies, which is used to avoid misallocation and mismanagement problems and has to ensure that foreign aid is linked to the productive sectors to optimize the benefits.