Vietnam has moved up five places in the 2011 Index of Economic Freedom prepared by US-based think tank Heritage Foundation and The Wall Street Journal, to rank 139th among 179 economies evaluated.
The country stood at 144th place last year.
In a report released on Wednesday, the Heritage Foundation said Vietnam's economic freedom score was 51.6 out of 100 in the 2011 Index, up 1.8 points from last year.
The higher score reflects gains in monetary freedom and business freedom, the Washington-based institute said.
However, its overall score is still below the world average of 59.7. Out of 41 countries in the AsiaPacific region, Vietnam ranks 30th.
The Heritage Foundation said Vietnam has been transforming itself into a more market-oriented economy as reforms have included partial privatization of state-owned enterprises, liberalization of the trade regime, and increasing recognition of private property rights.
Despite the challenging global economic environment, the economy has registered annual growth rates averaging about 7 percent over the past five years.
Vietnam's overall economic freedom, however, is limited by several key institutional factors, the institute said.
It went on to say that the country needs to improve the regulatory environment, bureaucracy, legal system, judiciary, and anti-corruption practices.
Hong Kong claimed the top position in the index with the score of 89.7, followed by Singapore, Australia, New Zealand, and Switzerland.
The United States dropped one notch to the 9th place in the 2011 Index, its lowest economic freedom score in a decade, and the UK fell all the way to 16th place.
Meanwhile, the world's second largest economy - China stands at 135th.
According to the foundation, the Index of Economic Freedom records countries' commitment to the free enterprise/capitalist system by measuring 10 categories of economic freedom: fiscal soundness and openness to trade and investment, government size, business and labor regulation, property rights, corruption, monetary stability and financial competition.