Ethiopia boasts more than a million students in its burgeoning higher education sector which has witnessed phenomenal growth over the last two decades. In this context, transnational higher education (TNHE) has been widely touted as a viable means of addressing human resource capacity building needs and quality educational provisions. Using documentary analysis, survey questionnaire and structured interviews as principal data sources, this study explored the major rationales, policy directions and gaps in the provision of TNHE in Ethiopia. The findings of the study indicate that despite policy directions informed by the theories of human capital development and social inclusion, which are widely advanced by multilateral agents like the World Bank and Organization for Economic Co-operation and Development, the gains so far have been marginal and fraught with a plethora of challenges. The study proposes mechanisms for addressing these challenges and enhancing the contribution of TNHE in the context of developing countries.