Background - Khat is a mild stimulant plant chewed by a limited segment of the population mainly in the eastern parts of Ethiopia for social facilitation and religious purposes. In recent decades, the use of khat has spread to all parts of the country and its social, economic and political impact has increased significantly at national level. In cities like Addis Ababa, the traditional purposes are superseded and it is now chewed mainly for recreational purposes. Following this development, many people have raised concerns on the potentially adverse socioeconomic and psychological effects of khat on the current generation, particularly the youth. The main issues raised are the misuse of income, the waste of productive time on chewing khat, and the adverse consequences on family cohesion and health. Those who argue in favor of khat cite its positive impact on increasing productivity, high economic returns and traditional values. These arguments on khat are not based on substantiated evidence and this research attempted to answer this question by assessing the ‘positive’ and ‘negative’ socioeconomic and psychological effects of khat on the chewers living in Addis Ababa. Drug control policies intersect with much of the 2030 Agenda for Sustainable Development and Ethiopia has not yet developed a policy on khat. This research intends to make its contribution to the development of the policy by highlighting the socioeconomic and psychological effects on the chewers. Objective –To assess the effects of khat on the income; use of time/time management/; productivity, and psychological well-being of chewers in the city of Addis Ababa. The study is related to policies of Ethiopia in relation to the production, marketing and consumption of khat. It makes policy recommendations based on the assessed costs and benefits. Methodology - The study, using snowball sampling, was conducted in 2018 with 84 khat users. The data collection methods employed were structured questionnaire focus group discussions, narrations of life stories and interviews with key informants. An extensive literature review was also conducted. Result – Respondents reported the diversion of financial resources to purchase khat compromising other personal and family needs and a waste of working hours on chewing khat. There were mixed results found on its effects on productivity. Users also reported that khat made them vulnerable to other addictions such as alcohol, cigarettes and hard drugs and to a number of social and psychological problems. Conclusion - Khat has a significant adverse impact on income and the efficient use of time of chewers. The findings on the effect on productivity are inconclusive. The reported physical and psychological effects on productivity need to be scientifically proven. Chronic use of khat is detrimental to mental health and leads to other serious health consequences. It distorts social and family relationships and inhibits the ability of the chewer to significantly execute his/her social responsibilities. It hurts the self-esteem of the chewers and makes them lose a sense of purpose in their lives. Thus, there is an urgent need to develop a national policy on khat. However, a comprehensive study should be conducted to exploit the potential benefits of khat (mood lifting and medicinal values) by using khat in a modest and controlled way. The social and economic interest of the suppliers; its religious and cultural significance, and environmental impacts should also be considered. / Development Studies / M.A. (Development Studies)