Panama is a country in Central America famous for its canal, but it has nothing to do with the song. The lyrics are about a stripper David Lee Roth met in Arizona. As he explained on The Howard Stern Show
, the song came about after an interview Roth gave in the early '80s; the interviewer accused him of only writing lyrics about sex, drugs, and fast cars. Sometime either during or after the interview, Diamond Dave realized he'd never actually written a song about fast cars, so he started working on the lyrics to "Panama," which he later admitted in another interview that, as it turns out, he had been writing about a stripper he knew without realizing it. The finished lyrics were inspired by both the stripper and the car.