Abstract: The paper deals with three aspects of Ethiopia's terms of trade. First, it presents an estimate of the impact of terms of trade volatility on the Ethiopian economy amounting to a cumulative loss of US$ 542 million over the period 1971-1991. Second, using time-series techniques of analysis the terms of trade volatility is decomposed into permanent and transient shocks. The analysis suggests that the negative growth component of Ethiopia's terms of trade is stochastic, implying a permanent nature of the shocks. And, third, using non-parametric methods it is established that 99% of a terms of trade shock will have died out in Ethiopia after 20 years. Thus, the terms of trade shocks in Ethiopia, though not permanent, are of a long duration.