New Zealand is the fourth most economically free country in the world, according to rankings released by a US think tank and the Wall Street Journal.

The Heritage Foundation's annual economic freedom index was released last week, with New Zealand moving up one position from fifth to fourth.

While the United States was downgraded from "free" to just "mostly free", the conservative think tank had almost nothing but praise for New Zealand.

"New Zealand continues to be a global leader in economic freedom," it said.

The index covers 10 freedoms, from property rights to entrepreneurship, in 183 countries. The foundation says it bases its idea of freedom on the ideas of economics' founding father, Adam Smith, and advocates free market policies.

New Zealand scored 82.1 out of 100, making it one of just seven countries above 80 classified as "free".

Particularly praised was New Zealand's "business freedom", with a score of 99.9, because, the report said, it was so easy to set up a new business here. It took only one day to start up a company in New Zealand, while the global average was 35 days, it said.

The result has attracted the attention of overseas commentators. In Britain's Telegraph newspaper, Nile Gardiner wrote that US President Obama should learn from New Zealand's "prosperity" and pursue a policy of greater economic freedom.

The top three in the rankings were Hong Kong, Singapore and Australia, with Ireland, Switzerland and Canada following New Zealand.

Last December, an Auckland company's link to smuggling North Korean weapons was investigated, with PricewaterhouseCoopers director Alex Tan saying New Zealand was known as an easy place to set up a shell company.

The top 10:

1. Hong Kong (89.7)

2. Singapore (86.1)

3. Australia (82.6)

4. New Zealand (82.1)

5. Ireland (81.3)

6. Switzerland (81.1)

7. Canada (80.4)

8. United States (78.0)

9. Denmark (77.9)

10. Chile (77.2)