  The paper models foreign capital inflow from the developed to the developing
countries in a stochastic dynamic programming (SDP) framework. Under some
regularity conditions, the existence of the solutions to the SDP problem is
proved and they are then obtained by numerical technique because of the
non-linearity of the related functions. A number of comparative dynamic
analyses explore the impact of parameters of the model on dynamic paths of
capital inflow, interest rate in the international loan market and the exchange
rate.
