Denmark came second and Sweden third in the 2012 Prosperity Index (pdf) published on Tuesday by the London-based Legatum Institute think tank.
Published annually for the last six years, the Prosperity Index ranks 142 countries based on criteria in eight categories including economic strength, health, education and governance.
In the 2012 ranking, Sweden received highest marks in the "Entrepreneurship and Opportunity" sub-index, ranking second overall on the strength of low business start-up costs, high mobile phone penetration, and a high percentage of people who believe they will get ahead with hard work.
According to Legatum Institute CEO Jeffrey Gedmin, the index creates a "comprehensive picture of what makes a country truly successful, encompassing traditional measures of material wealth, as well as capturing citizens’ sense of well-being".
"GDP alone can never offer a complete view of prosperity," he said in a statement.
According to Gedmin, successful countries combine "social responsibility with personal freedom".
Despite continuing economic concerns in Europe, European countries dominated the top ten.
The United States, meanwhile, dropped out of the Prosperity Index top ten for the first time, dropping to twelfth place at what Gedmin called a "pivotal time" as the 2012 presidential elections draw closer.
“As the US struggles to reclaim the building blocks of the American Dream, now is a good time to consider who is best placed to lead the country back to prosperity and compete with the more agile countries that have pushed the US out of the top ten," he said.