Bahrain and the UAE are home to the highest levels of economic freedom among Arab nations, according to an annual index published by a Canada-based think tank Arabianbusiness reported.
The Economic Freedom of the Arab World report published by the Fraser Institute, showed that Bahrain, which ranked first last year, improved its overall score to 8.1 out of 10 from 8.0.
The UAE also scored 8.1, tying with Bahrain after ranking second overall in 2011 with a score of 7.9.
Jordan moved into the third spot from eighth overall, improving its score to 7.9 from 7.4 last year.
"Economic freedom is the key to increasing prosperity, creating jobs, and reducing poverty," said Fred McMahon, Dr Michael A Walker, research chair in Economic Freedom and co-author of the report.
"In this way, economic freedom liberates people from government dependence and opens the door to democracy and other freedoms. The Arab Spring showed us that the region craves economic freedom."
The Economic Freedom of the Arab World report compares and ranks Arab nations in five areas of economic freedom - size of government, commercial and economic law and security of property rights, access to sound money, freedom to trade internationally and regulation of credit, labour, and business.
Elsewhere in the Gulf, Kuwait (7.8) ranked fourth, while Lebanon and Oman (7.6) were tied for fifth place.
Qatar (7.4) came seventh in the regional rankings while Saudi Arabia (7.3) was the lowest ranked Gulf nation.
Fraser said economic freedom was based on the cornerstones of personal choice, voluntary exchange, freedom to compete, and security of private property.
Research shows that individuals living in countries with high levels of economic freedom enjoy higher levels of prosperity, greater individual freedoms, and longer life spans.
Salem Ben Nasser Al Ismaily, the report's lead author, said: "Increases in economic freedom that are, in effect, a return to the classical Arab model of free trade and open markets would help generate the economic dynamism needed to create the jobs and prosperity that the region requires for a successful future."
The report, which is based on data from 2010, the most recent year available, showed that Algeria, Mauritania, and Syria had the least economic freedom among Arab nations.
These bottom-ranked countries scored, on average, two points behind the nations with the highest levels of economic freedom, with Algeria at 5.7, up from 5.5 last year; Mauritania unchanged at 6.0; and Syria at 6.2, up from 5.9.
Arab World Rankings:
1. Bahrain and United Arab Emirates (8.1)
3. Jordan (7.9)
4. Kuwait (7.8)
5. Lebanon and Oman (7.6)
7. Qatar (7.4)
8. Saudi Arabia (7.3)
9. Yemen (7.2)
10. Comoros and Tunisia (6.8)
12. Egypt (6.7)
13. Djibouti (6.6)
14. Morocco (6.5)
15. Syria (6.2)
16. Mauritania (6.0)
17. Algeria (5.7)