According to the World Bank, Laos remains the poorest and least developed country in East Asia and one of the ten poorest countries in the world, with a per capita income of around US$320. Infant mortality remains high, and in remoter regions inadequate diet, poor sanitation and limited healthcare still give rise to debilitating and fatal diseases.

In the decade after 1975 the economy grew at just 2.9 per cent each year, barely enough to feed the population, and an abortive attempt to collectivise agriculture during the late 1970s seriously disrupted production. Reform was initiated in 1986 when, like its neighbour Việt Nam, the Lao government adopted a programme of structural reform known as the New Economic Mechanism (NEM), the main objective of which was to bring about the transition from a centrally-planned economy to a market-oriented one. Because of the country’s land-locked location and underdeveloped communications infrastructure, the reformist economic policies of the 1980s have taken longer to take root in Laos than they did in Việt Nam, but from 1991 until 1997 growth averaged 6 per cent, and Laos succeeded in attracting substantial foreign investment in mining, food processing and the textile industry. Heavily reliant on Thailand for both imports and exports, the country was hit badly by the Asian crisis of 1997, but since 1999 annual growth has recovered, averaging 5 per cent per annum. Private enterprise has developed considerably since receiving official encouragement in 1987, although the government still subsidises a number of loss-making state enterprises.

More than three quarters of the country's population are still engaged in subsistence farming, although it has been estimated that as much as 40 per cent of arable land remains barren as a result of decades of warfare.

Agriculture accounts for around 53 per cent of GDP and includes the farming of glutinous rice, coffee, corn, sugar cane, vegetables, sweet potatoes, ginger, tea, peanuts, tobacco and cotton, and the raising of water buffalo, pigs, cattle and poultry. Industry accounts for 23 per cent of GDP and includes garment manufacturing, hydroelectricity production and sales, gypsum and tin mining, wood processing, cement manufacturing and agricultural processing. The remaining 24 per cent of GDP is based on the services sector, which includes tourism and communications.

After a comparatively late start in the mid 1990s, tourism emerged by 2000 as one of the country's top foreign income earners. In 2004 tourism visitor numbers showed a 22 per cent increase over 2002's previous high to reach a total of 894,806, generating US$118,947,707 in revenue. By 2010 the Lao National Tourism Administration aims to attract 1.2 million visitors each year, with attendant revenue of over US$189 million per annum

Although Laos has in recent years experienced an increase in export earnings, it still faces an annual trade deficit. Lao exports generated total revenues of c US$332 million in 2003, and included garments, electricity, wood and wood products, coffee, cardamom, rattan and tin, primary markets being Thailand, Việt Nam, France, and Germany; imports amounted to US$492 million in 2003 and included fuel, food, consumer goods, machinery and equipment, vehicles and spare parts, mainly from Thailand, Việt Nam, China and Singapore.