In a survey of 128 countries by the non-profit, pro-democracy Bertelsmann Foundation, Estonia was ranked fourth while Latvia came 13th, the Baltic Times (BT) reports.
The study measured the state of democracy and the market economy in each surveyed nation, in addition to the quality of the political scene, the news provider said.
Estonia also achieved third place in the management index part of the study, outranked only by Uruguay and Chile, BT added.
The news will serve as a further boost to investment in Estonia. Last week, the Estonia Free Press reported that the Baltic state had reduced its external debt this year as exports of goods and services exceeded imports.
Last week also saw the passing of the European Union (EU) Services Directive. The directive will enable further integration with EU economic policy as service providers in Estonia will now be able to offer their services to customers in other EU countries, Baltic Business News said.