The state had a GDP per capita of RM72,586 (US$15,918), the third highest in the country after Kuala Lumpur and Labuan, surpassing the World Bank’s threshold for high-income economies.

[8] Apart from its traditional strengths in tourism and finance, Penang has increasingly become a centre for health care, business events, ecotourism and cruise arrivals.

[13][14] Originally founded as an entrepôt by the British East India Company (EIC) in 1786, Penang suffered economically following the revocation of its capital George Town's free port status in 1969.

[9][23] As Light intended, George Town grew rapidly as a conduit for spice trade, taking maritime commerce from Dutch posts in the region.

[28][29] In the end of the 19th century, George Town became the primary financial centre of British Malaya, as mercantile firms and international banks opened along Beach Street.

[23][31] In the years leading to Malaya's independence from Britain, British administrators dismantled the Straits Settlements and merged Penang into the nascent Malayan federation.

This alarmed George Town's business elites, who feared that the merger would result in the loss of the city's free port status and increased federal interference in Penang's economic affairs.

[9] Following Malaya's independence, Penang's maritime trade continued to shrink, as neighbouring countries Burma, Indonesia and Thailand developed their port infrastructure.

[9] The period of relative prosperity vis-à-vis the rest of Malaysia came to an end in 1969, when the federal government revoked George Town's free port status.

The report recommended a shift in development strategy from Seberang Perai to Bayan Lepas, where the Penang International Airport is sited, to capitalise on readily-available logistics and a substantial labor force.

[9] Newly-elected Chief Minister Lim Chong Eu implemented the report's recommendations by embarking on an export-oriented industrialisation strategy centred on the electronics industry as the main sector.

[38] Lim, however, was able to secure autonomy and freedom to implement economic reforms, by maintaining ties with Abdul Razak and ensuring order within Penang.

[9] Penang's rapid industrial growth propelled it to a "similar stage of technological development" vis-à-vis Singapore, leading to competition between the two territories for expertise.

[9][41] Industrialisation significantly contributed to the rise in Penang's GDP per capita and a substantial reduction in unemployment rates, ultimately resulting in a shortage of skilled labour.

[17] Economic spillover to parts of neighbouring Kedah and Perak catalysed the growth of the George Town Conurbation, which became the second largest metropolitan economy in Malaysia after the Klang Valley by 2010.

However, Penang's economy was adversely affected by the 1997 Asian financial crisis, precipitating a deceleration in the state's economic growth in the early 21st century.

[53] According to Financial Times in 2024, Penang is well-positioned to benefit from the ongoing China–United States trade war, as restrictions prompt businesses to adopt the China Plus One strategy.

[2][4] Major subsectors in the state include logistics, communications, retail, food and beverages (F&B), tourism, financial, real estate and business services.

[60][61] Traditionally one of Malaysia's most popular tourist destinations, Penang has attracted important people such as W. Somerset Maugham, Rudyard Kipling, Lee Kuan Yew, Queen Elizabeth II and King Charles III.

[66] Economic diversification measures have led to Penang expanding its tourism offerings in areas such as health care, business events, ecotourism and cruise arrivals.

[67][68][69] George Town is the country's second most popular destination for meetings, incentives, conferences and exhibitions (MICE) after Kuala Lumpur, with the industry had an economic impact of about RM1.3 billion (US$0.31 million) throughout the state in 2018.

[76] By 2016, the state attracted the second largest share of investments for global business services (GBS) in the country after Kuala Lumpur, creating over 8,000 high-income jobs in the process.

Each state is constitutionally only authorised to generate revenue from land, natural resources and forests within its jurisdiction, as well as from receipts related to applications and development plans.

In comparison to larger and more resource-rich states, Penang faces challenges in generating revenue due to its small land area and lack of natural resources.