Foreign capital inflows are important sources of investment finance for low income developing countries like Laos. On the other hand, massive foreign capital inflows also may have adverse economic effects. This syndrome is called ‘Dutch Disease’. It refers to the phenomena that, firstly, capital inflows give rise to appreciation of the real exchange rate which causes adverse effects for traded goods production and employment. Despite the positive and negative impact of the foreign capital inflows on the Lao economy, there are very few studies on this issue. Therefore, this paper attempts to investigate the effects of foreign capital inflows on Lao economy using a simple macroeconomic model. The results show that the foreign capital inflows by resource sectors stimulate the economic growth meanwhile it also has impact on increasing price and appreciating real exchange rate, which lead to declining export. However, for a rather short period of three years of our simulation, the latter effect is not so strong. We anyhow conclude that foreign capital inflows have two-side effects, positive and negative impact on Lao economy, and we can see Dutch Disease syndrome in Lao economy in the long run. Therefore, the government should pay more attention to macroeconomic management to avoid Dutch Disease in near future.