Paraguay has a market economy marked by a large informal sector that features both re-export of imported consumer goods to neighbouring countries as well as the activities of thousands of microenterprises and urban street vendors. A large percentage of the population derive their living from agricultural activity, often on a subsistence basis.

Paraguay's economy is very dependent on Brazil, its neighbour in the east. Most of the country's imports come by road through the Brazilian port of Paranaguá.The selling of cheaper goods is another important source of revenue and it is still a common habit in Brazil to go to Paraguay and buy electronics there. About 60% of the GDP is from commerce with Brazil.

Despite difficulties arising from political instability, corruption, slow structural reforms. Since 1991 Paraguay has been a member of the free trade bloc MERCOSUR.