Palau Economics and Business

Palau is a small island nation located in the western Pacific Ocean. It has a population of approximately 21,000 people and a GDP per capita of US$8,636. The economy of Palau is largely based on tourism and fishing, with both industries accounting for more than 80% of total GDP. Additionally, the government has been working hard to diversify the economy by promoting activities such as agriculture and the manufacturing of consumer goods.

According to cheeroutdoor, tourism is by far the most important industry in Palau with over 120,000 visitors arriving each year. The government has been actively promoting tourism by investing in infrastructure such as hotels and resorts as well as improving access to attractions such as diving sites and World War II battlefields. Tourism has also provided an important source of foreign currency earnings which have enabled Palau to purchase essential imports without relying on other countries’ generosity.

Fishing is also an important industry in Palau with exports accounting for around 25% of total exports. Fish stocks are managed carefully to ensure sustainable stocks which can provide a reliable source of income for local fishermen while also protecting biodiversity. Additionally, the government provides free fishing licenses to local fishermen which encourages them to stay within sustainable limits when harvesting fish stocks.

In order to maintain economic growth into the future, the government needs to focus on improving infrastructure such as roads, ports and telecommunications networks which are still lagging behind other countries in the region. Additionally, it needs to diversify its export markets beyond traditional goods such as seafood so that it can increase foreign currency earnings which would enable it to purchase essential imports without relying on other countries’ generosity. Furthermore, there needs to be a greater focus on creating more jobs by encouraging foreign investment and entrepreneurship as well as providing better education opportunities so that citizens can access new skills that can help them succeed in a globalized world.

Business is underdeveloped. Gross domestic product (GDP) per capita was estimated at $ 7500 (2003), which is among the highest in Micronesia. However, Palau has a chronic budget deficit and is dependent on foreign aid. US financial support is secured through an association agreement that provided a grant of $ 700 million in the period 1994-2008. According to COUNTRYAAH, the largest growth industry is tourism, which since the turn of the millennium has responded to approx. 10% of GDP and an equal share of employment. In 2004, the country received approx. 63,000 visitors, mainly from Japan and Taiwan. The tourists come first and foremost to dive; The waters around Rock Island, near Koror, have one of the best-preserved marine ecosystems in the South Pacific.

Palau GDP (Nominal, $USD) 2003-2017

Agriculture and fishing are mainly run at self-storage level. The most important agricultural products are coconuts, tapioca, bananas and sweet potatoes. Fishing licenses are sold to foreign trawlers, but widespread illegal fishing due to poor surveillance is a problem.

Note: the capital city of Palau is Ngerulmud with a population of 277 (in the state of Melekeok on Babeldaob) (2018). Other major cities include Koror with a population of 11,200 (estimate 2020).

Abbreviated as PLW by, Palau has a considerable financial sector that caters to foreigners. The island state has on several occasions been accused of allowing money laundering through poorly regulated banks. The legislation has been sharpened several times following threats of EU and US sanctions.

Transport and Communications

Koror has a bridge connection with Babeldaob and the neighboring islands of Arakabesang and Malakal. There are deep water ports in Malakal. 2003 opened a new international airport at Babeldaob, built with Japanese assistance. There are local airports at Peleliu and Angaur.

Palau Economics and Business


The characters of the population result from the cross between Malaysians, Filipinos, Melanesians and ancient Polynesians. The residents are mainly concentrated in the major islands of Koror (about two thirds) and Babelthuap; the prevailing settlement model is that of the traditional village. The capital, in addition to being the main economic and administrative center of the country, is one of the most important ports in Micronesia.

Economic conditions

Palau’s economy is largely based on agriculture (bananas, sugar cane, copra, coconuts), on fishing, and for some time also on the exploitation of mineral resources (bauxite and phosphates) and above all on tourism.

Palau earns significant income from the sale of fishing licenses in its territorial waters to fleets of foreign countries (mainly Taiwan, the United States, Japan and the Philippines). The industrial sector remains weak, although several projects carried out in the 1990s are trying to encourage the development of small businesses in traditional manufacturing sectors. The tertiary sector occupies the ‘ 81, 5% of the labor force (1995); of these workers on 24, 6% is employed in the public administration. Tourism ensures substantial revenues in foreign currency and is constantly developing, although the lack of infrastructure hinders its full take-off. Lack of investment and a persistent budget deficit are limiting factors for the full development of the economy.

In the mid-nineties, the government, thanks above all to the financial aid guaranteed by the United States in exchange for the granting of military bases on Palau’s territory, undertook a series of initiatives aimed at favoring the development of the economy: reduction of the employment burden in the public sector, incentives to encourage the return of citizens who emigrated abroad (especially to the United States and the Mariana Islands), projects in favor of tourism activities. Palau’s economy took a major hit in late 1996, with the collapse of the bridge connecting the islands of Koror and Babelthuap.


Entrusted in 1947 to the United States in trust, in 1994 the Palau Islands were admitted to the UN as a ‘sovereign state freely associated with the United States’, with the name of the Republic of Palau. Washington, however, retained some control over its foreign policy and continued to ensure its defense. President of the Republic has been Kuniwo Nakamura since 1992, re-elected in 1996.

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