The effectiveness of EU Structural Funds on the economic performance of the receiving countries has been extensively investigated in the last twenty years. The results indicate that the impact of these funds on economic growth is conditional on the quality of the institutions of the receiving countries. In the case of countries with poor institutional quality, the effect of Structural Funds on economic growth will be negative. The reason being, that Structural Funds do affect the allocation of recourses and in countries with poor institutional quality the misallocation of resources might worsen. For example, corruption might divert funds from productive activities; increased opportunities for rent seeking might absorb resources and so on. Copyright 2009 Blackwell Publishing Ltd.