Italy ranks 12th in the 2015 foreign direct investment confidence index by AT Kearney, the management consultancy firm, rising from 20th place last year.
The country, which is still grappling with one of the highest rates of unemployment in Europe, came ahead of sturdier economies including Switzerland, Sweden, the Netherlands and Denmark.
Despite weak growth in 2014, Italy “continued to attract high levels of investment”, the report said.
“In the face of a mounting unemployment crisis, the government worked to pass controversial labor market reforms under the Jobs Act that ease firing restrictions and address Italy’s rigid labor market.”
Foreign investors are also closely watching progress on other reforms being steered by premier Matteo Renzi, such as an overhaul of the public administration and judicial system.
Economy Minister Pier Carlo Padoan told reporters last week that the reforms would build the foundation for Italy’s long-term economic growth.
Investors have also been buoyed by recent deals between foreign and Italian companies, such as the acquisition of the household appliance firm Indesit by the US-based Whirlpool last year, and the merger between Alitalia and Abu Dhabi’s Etihad, which helped save the flagship carrier from bankruptcy.
Italy is also aggressively targeting Chinese business investors. More than 200 Italian companies are now in Chinese hands, AT Kearney said.
In March, China National Chemicals announced it would buy the tyre manufacturer Pirelli for $7.7 billion – one of the largest acquisitions by a Chinese state company.
Padoan said last week that the economy, which is expected to grow by 0.6 percent this year, is facing a “window of opportunity”, especially with an improvement in the macro-economic environment.
A reform clause in European Commission budget rules has given Italy, and other EU states in the midst of structural reforms, more room for new spending.
In April, the government said it had found €1.6 billion extra to spend this year by letting the national deficit rise slightly to 2.6 percent of GDP from 2.5 percent. The money will likely be spent on social initiatives.
Along with reforms, another priority is attracting more investment and helping businesses, especially when it comes to simplifying administration and improving access to finance for companies.
The US came first in AT Kearney's ranking of 25 countries, followed by China and the United Kingdom.