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The utilization of European Union (EU) financial assistance is one of the central issues for Member States, as well as Candidate Countries like Croatia. In order to fully gain from the allocated resources of the EU budget, each country needs an adequate absorption capacity (AC). This article is about the absorption capacity of EU pre-accession programs in Croatia. The absorption capacity of EU pre-accession assistance is seen from two theoretical standpoints: the first originates from development economics, while the second developed from the theory of multilevel governance (MLG). The purpose of this article is to analyse the factors / determinants of absorption capacity, and the implementation of pre-accession programs in Croatian municipalities. In order to test the relation of AC and implementation (usage) of the EU funds, an empirical multivariable regression model of AC was established. The empirical estimation confirmed the expected positive correlation between the AC and EU funds. Another key issue that was discovered is that AC is very much a dynamic concept in the sense that ability to use EU funds changes over time, in response to a variety of endogenous and exogenous factors. As such, it calls for broader analysis and presents a challenge for further work on the subject.
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