Abstract
Financial liberalization is a process that involves the adoption and implementation of various reforms in the financial sector of the country and it is imperative to measure the level of liberalization at different time period. The aim of this study is to construct a financial liberalization index (FLI) for Pakistan employing principal component method over a period of 24 years from 1991 to 2014. The present study is an attempt to improve the financial liberalization index formation by considering the real time change in implementation process. However previous studies Chowdhury (2006) and Amaira and Amaira (2014) considered single entry for one reform. The index prefigures the degree of financial liberalization over a given time period. The formulated index reveals that the process of financial liberalization accelerated from 1998-2003, for rest of the years the pace remained sluggish.