The Lao PDR, strategically situated in the heart of the Greater Mekong Sub-Region, opened its economy to foreign investors in 1986 when it launched its New Economic Mechanism policy. It was quickly overtaken by the strong growth of its more powerful neighbours, however, as Thailand and Vietnam attracted foreign capital.

With a government based on socialism, the country has not gone down the road to market reform easily. The small size of the Lao economy has also hampered its ability to fund development and improve its internal transport infrastructure. The Lao PDR has therefore been heavily dependent on aid agencies, the World Bank and Asian Development Bank for assistance in developing basic infrastructure such as roads, railways, and the financial sector. Great strides have been taken to lift the Lao PDR from its place as a forgotten corner of the world. It became a member of the ASEAN group of countries in 1997 and has also applied to join the World Trade Organization (WTO). Since 1997, however, the Lao PDR has suffered an economic crisis, triggered by the regional crisis. The local currency lost 90% of its value against the US dollar in 18 months; demand for Lao goods in neighbouring countries slowed down, harming the balance of trade; foreign direct investment by Asian countries decreased sharply; and the cost of imports rose.

The future for the Lao PDR in the near term is likely to be more one of potential than of realised opportunity; strong sustained growth is unlikely until regional demand recovers. However, its strategic position in one of the fastest emerging areas in Asia is almost certain to benefit its long-term economic development. The potential for growth is particularly strong in certain areas such as power generation and mining. The establishment of the Savan-Seno Special Economic Zone in Savannakhet Province along the East-West Corridor promises to become an attraction for investors. Furthermore, in December 2004 the Lao PDR was granted the Normal Trade Relations (NTR) with the USA.