The institute on Tuesday published its annual ranking for 2014 which evaluates countries according to a number of factors including economic growth, enterprise, governance, education, health, security, personal freedoms and social capital.
Norway is followed by Switzerland, New Zealand, Denmark, and Canada. Among the top ten countries are also Sweden, Australia, Finland, the Netherlands and the United States.
Croatia's latest ranking is an improvement from 2013, when it was placed 53rd.
In 2010, Croatia was ranked 38th, in 2011 it was 41st and in 2012 50th. It is ranked the best in education and health (36th). In terms of security it is ranked 39th, in governance 51st, enterprise 53rd, economy 73rd and personal freedoms 85th. It has the lowest ranking in social capital, 119th.
Of Croatia's neighbours, Slovenia is the best ranked - 24th, Montenegro is 65th, Macedonia 69th, Serbia 77th and Bosnia and Herzegovina 91st.
The least prosperous countries are the Central African Republic, which is 142nd, preceded by Chad, the Democratic Republic of the Congo, Burundi, Yemen, Afghanistan, Togo, Haiti, Sierra Leone and Guinea.
The prosperity index shows that the more free countries with greater social cohesion that have good governance have recovered better from the financial crisis than other countries. The Legatum Institute also underlines that the most prosperous countries are those that offer their citizens opportunities and have a high degree of social mobility.