In the paper, the results of research into the competitiveness of Hungary's economy in 1995-2002 were presented. The competitiveness of the economy was determined on the level of the manufacturing sector with special regard to the impact of foreign direct investment on the automotive industry and the electrical and optical appliance industry. The above industries that in the 1990s had enjoyed priority governmental support in the form of investment incentives, showed the strongest penetration by the foreign capital. The foreign direct investment (FDI) companies established in these industries made the quickest adaptive structural transformations in the sphere of production and marketing, increased the export volume and decidedly improved the quality of their product offer, thus integrating Hungary into the European production and sales chain. This has been not without influence on the profitability of the FDI companies in the above industries. Thus, the adaptability of the Hungarian economy and its sales and profit making capability in the industries under review have proved to be high, thanks to the foreign direct investment companies. However, at the same time the economy's capability of attracting foreign investment has been considerably weakening, as the volume of foreign investment in the manufacturing sector has been approaching the limit of this sector's absorption capability.