Sweden comes in behind Hong Kong and the US, both of which tied for first place, and third place Singapore.
Sweden's favourable ranking and improvement on 2010 is due to strong economic growth, allowing it to overtake Switzerland and Australia in the 2011 list.
The IMD rankings include 59 countries and are based on statistics and assessments from business leaders.
“The world of competitiveness becomes more national. ‘World Competitiveness 2.0' is thus characterised by a greater self-reliance of countries. It increasingly emphasises re-industrialisation, exports, and a more critical look at delocalisation,” wrote IMD's Stéphane Garelli.
Garelli explained that the trend has been triggered by the climb in commodity and transport prices as well as higher labour costs in emerging economies.
"National champions are favoured everywhere and borders re-surface - again!" he wrote.
IMD also released the results of its first "Government efficiency gap" survey.
According to the findings the US was "rescued" by its business efficiency while Sweden, along with Australia and Singapore, displayed a greater balance.
“Government spending has reached new highs since the recession: on average 47 percent of the GDPs in the most advanced economies. 12 European countries are already above the 50 percent threshold. The 23 biggest spenders are all European governments. How long can it last?" professor Garelli queried.
Garelli argued that in a new world of "state capitalism", government efficiency will assume increasing importance as a determinant of competitiveness.