The Lao economy is heavily dependent on investment and trade with its neighbors, Thailand, Vietnam, and, especially in the north, China. Pakxe has also experienced growth based on cross-border trade with Thailand and Vietnam.

Much of the country, however, lacks adequate infrastructure. Laos has no railways, except a short link to connect Vientiane with Thailand over the Thai-Lao Friendship Bridge.

The major roads connecting the major urban centres, in particular Route 13, have been significantly upgraded in recent years, but villages far from major roads are accessible only through unpaved roads that may not be accessible year-round. There is limited external and internal telecommunication, but mobile phones have become widespread in urban centres.

In many rural areas electricity is at least partly unavailable. Songthaews (pick-up trucks with benches) are used in the country for long-distance and local public transport.

Subsistence agriculture still accounts for half of the GDP and provides 80% of total employment. Only 4.01% of the country is arable land, and 0.34% used as permanent crop land, the lowest percentage in the Greater Mekong Subregion. Rice dominates agriculture, with about 80% of the arable land area used for growing rice.

Approximately 77% of Lao farm households are self-sufficient in rice. Through the development, release and widespread adoption of improved rice varieties, and through economic reforms, production has increased by an annual rate of 5% between 1990 and 2005, and Lao PDR achieved a net balance of rice imports and exports for the first time in 1999. Lao PDR may have the greatest number of rice varieties in the Greater Mekong Subregion.

Since 1995 the Lao government has been working with the International Rice Research Institute to collect seed samples of each of the thousands of rice varieties found in Laos.

The economy receives development aid from the IMF, ADB and other international sources, and foreign direct investment for development of the society, industry, hydropower and mining, most notably copper and gold. Tourism is the fastest-growing industry in the country. However, economic development in has been hampered by brain drain, with a skilled emigration rate of 37.4% in 2000.

Laos is rich in mineral resources but imports petroleum and gas. Metallurgy is an important industry, and the government hopes to attract foreign investment to develop the substantial deposits of coal, gold, bauxite, tin, copper and other valuable metals in the country.

In addition, the country's plentiful water resources and mountainous terrain enable it to produce and export large quantities of hydroelectric energy. Of the potential capacity of approximately 18,000 megawatts, around 8,000 megawatts have been committed for exporting to Thailand and Vietnam.

Tourism sector has grown rapidly, from 14,400 tourists visiting Laos in 1990, to 1.1 million in 2005. Annual tourism sector revenues are expected to grow to $250–300 million by 2020.