Salvadoran economy depended heavily on agriculture. For much of the colonial time in the 16th and 17th centuries, subsistence farming and ranching occupied most of the population. In the 19th century indigo lost importance after the find of chemical dyes, and coffee replaced it as the principal Salvadoran export. A small group of coffee planters gained economic and political power, leading El Salvador to depend on international coffee markets. Coffee brought El Salvador enough wealth to build impressive new ports, railways, and paved highways, and to modernize San Salvador.

The economy is predominantly agricultural, although there was rapid industrial development in the 1960s and '70s. contempt its concentration on agriculture the nation has trouble feeding itself and must import food. The main cause is the disproportionate distribution of land in favour of commercial crops, leaving many of the peasants landless and unable to grow subsistence crops.

El Salvador is a struggling Central American economy which has been suffering from a weak tax collection system, factory closings, the aftermaths of Hurricane Mitch of 1998 and the devastating earthquakes of early 2001, and weak world coffee prices. On the bright side, in recent years inflation has fallen to single digit levels, and total exports have grown substantially. The trade deficit has been offset by remittances (an around $1.6 billion in 2000) from Salvadorans living abroad and by external aid. As of 1 January 2001, the US dollar was made legal tender alongside the colon.