Since colonial times, Panama’s location has made it a crossroads for trade and transit. This role assumed worldwide significance in the 20th century with the completion of the Panama Canal, which controlled Panama’s economy for decades and tied it closely to the United States. Panama’s gross domestic product (GDP) was $9.56 billion in 1999, equal to $3,400 per person. Commerce, finance, and business services constituted the core of Panama’s economy, contributing 76 % of the GDP. Most economic activity was concentrated in the urban area of central Panama surrounding the canal. In the 1990s the rural economy accounted for 10 % of the GDP and was primarily agricultural, producing farm and ranch commodities. Spending by the United States on military bases added another 5 %, or $366 million, to the GDP, but that ended when Panama assumed control of the canal in 1999.

Nearly three-fourths of the gross domestic product (GDP) is generated by the service sector—a greater proportion than in any other Latin American nation—and services employ the majority of the workforce. Services have grown mainly because of offshore banking and canal traffic; public administration and other services are also valuable. Agriculture and fishing account for less than one-tenth of the GDP but nearly one-fifth of the workforce.

Panama's economy is based primarily on a well-developed services area that accounts for three-fourths of GDP. Services include the Panama Canal, banking, the Colon Free Zone, insurance, container ports, flagship registry, and tourism. A slump in Colon Free Zone and agricultural exports, high oil prices, and the withdrawal of US military forces held back economic growth in 2000. The government plans public works programs, tax reforms, and new regional trade agreements in order to stimulate growth in 2001.