The Lao economy depends heavily on investment and trade with its neighbors -Thailand, Vietnam, and, especially in the north, China. Laos has also experienced growth based on cross-border trade with Thailand and Vietnam.
Subsistence agriculture still accounts for half of the GDP and provides 80% of employment. Only 4.01% of the country is arable land, and a mere 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 of the Philippines to collect seed samples of each of the thousands of rice varieties found in Laos.
The economy receives development aid from the IMF, Asia Development Bank, and other international sources; and also foreign direct investment for development of the society, industry, hydropower and mining (most notably of copper and gold). Tourism is the fastest-growing industry in the country. Economic development in Laos has been hampered by brain drain, with a skilled emigration rate of 37.4% in 2000.
Laos is rich in mineral resources and 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 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.
The country's most widely recognized product may well be Beer Lao which is exported to a number of countries including neighbors Cambodia and Vietnam. It is produced by the Lao Brewery Company.
The tourism sector has grown rapidly, from 80,000 international visitors in 1990, to 1.876 million in 2010. Tourism is expected to contribute US$679.1 million to gross national product in 2010, rising to US$1.5857 billion by 2020. In 2010, one in every 10.9 jobs was in the tourism sector. Export earnings from international visitors and tourism goods are expected to generate 15.5% of total exports or US$270.3 million in 2010, growing in nominal terms to US$484.2 million (12.5% of total) in 2020.
Laos has become popular with tourists for its relaxed style of living and for retaining elements of the "original Asia" lost elsewhere. The official tourism slogan is "Simply Beautiful". The main attractions for tourists include Buddhist culture and colonial architecture in Luang Prabang; gastronomy and ancient temples in the capital of Vientiane; backpacking in Muang Ngoi Neua and Vang Vieng; ancient and modern culture and history in The Plain of Jars region (main article: Phonsavan); Laos Civil War history in Sam Neua; trekking and visiting hill tribes in a number of areas including Phongsaly and Luang Namtha; spotting tigers and other wildlife in Nam Et-Phou Louey; caves and waterfalls near Thakhek; relaxation, the Irrawaddy dolphin and Khone Phapheng Falls at Si Phan Don or, as they are known in English, the Four Thousand Islands; Wat Phu, an ancient Khmer temple complex; and the Bolaven Plateau for waterfalls and coffee.
Luang Prabang and Wat Phu are both UNESCO World Heritage sites, with the Plain of Jars expected to join them once more work to clear UXO has been completed. Major festivals include Laos New Year which is celebrated around 13–15 April and involves a water festival similar but more subdued than that of Thailand and other South-East Asian countries.
The Lao National Tourism Administration, related government agencies and the private sector are working together to realize the vision put forth in the country's National Ecotourism Strategy and Action Plan. This includes decreasing the environmental and cultural impact of tourism; increasing awareness in the importance of ethnic groups and biological diversity; providing a source of income to conserve, sustain and manage the Lao protected area network and cultural heritage sites; and emphasizing the need for tourism zoning and management plans for sites that will be developed as ecotourism destinations.
Laos is known for its silk and local handicraft product, both of which are on display in Luang Prabang's night market, among other places. Another specialty is mulberry tea.