The United States is no longer among the world's top 10 nations in terms of economic freedom, according to a newly published index. The world's largest economy slipped two notches into the 12th position in the 2014 Index of Economic Freedom by think tank Heritage Foundation and the Wall Street Journal, released Tuesday, registering its seventh consecutive decline. The index evaluates countries in four broad areas: rule of law; regulatory efficiency; limited government; and open markets. (Read more: Autos to lead US economic growth in 2014: CEOs)

"The overall economic policy direction of the United States in recent years has involved substantial growth in the size and scope of government, accelerating the erosion of economic freedom and contributing directly to America's fall from the top 10 freest economies," a report accompanying the index said.

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"The absence of meaningful fiscal reform has weakened the government's balance sheet and led to the explosive growth of government debt. The increasing cronyism that has accompanied the growth of government has undermined the rule of law, further eroding America's economic freedom," it added. In addition, costly regulations in areas like finance, health care and the environment have curtailed economic freedom in the country, which is at its second lowest level in the 20-year history of the Index. "These have injected uncertainty into business decision-making that has slowed job creation and hiring and hurt economic recovery and growth," the report said.

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The world's freest economy is...

While the U.S.'s economic freedom is deteriorating, the global trend is more positive, with much of the momentum lost during the past five years being regained. The world average score of 60.3 is seven-tenths of a point above the 2013 average, and the highest average in the two-decade history of the Index. Asian financial capital Hong Kong maintained its title as the world's freest economy for the twentieth consecutive year. (Read more: Biggest Risk toAsia's Economy? Not What You Think) "Creation of a new company, the level of taxation, the ability of the lowest quintile to rise up, is better in Hong Kong than anywhere else," Ed Feulner, founder and chairman of the Asian Studies Center, The Heritage Foundation told CNBC Asia's Squawk Box.