The success of the Nordics is based on their "very healthy macroeconomic environments and public institutions that are highly transparent and efficient," said Augusto Lopez-Claros, chief economist and director of the Geneva-based institute's global competitiveness program.
Japan slipped to No. 12 from No. 9 last year as a result of poor management of its public finances, but reforms proposed by Prime Minister Junichiro Koizumi to privatize the sprawling postal service could help turn things around, the study said.
China dropped for the second straight year to No. 49 from No. 44 in 2003, as the survey said it continues "to suffer from institutional weaknesses which, unless addressed, are likely to slow down their ascension to the top tier of the most competitive economies in the world." India rose three places to come in just behind at No. 50.
The aim of the survey, the World Economic Forum says, is to examine the range of factors that can affect an economy's business environment and development - including the levels of judicial independence, protection of property rights, government favoritism and corruption.
Lopez-Claros said the Nordic nations were disproving the common belief that high taxes hinder competitiveness.
Finland, home of mobile phone giant Nokia Corp., topped the study because of its swiftness in adapting to new technology and the quality of its public institutions, the report said.
The United States ranked second because it "demonstrates overall technological supremacy, with a very powerful culture of innovation," the World Economic Forum said. But it suggested the United States might have been kept from the top spot because of its low scores for contractual law and macroeconomic management.