This work consists of two closely related parts: theory development and coding of correlation effects in a model solvation potential and study of solvent effects on chemical reaction. The effective fragment potential-EFP method has been re-parameterized, using density functional theory-DFT. The DFT based EFP method includes short-range correlation. The new method has been implemented in the electronic structure code GAMESS.Formulas for the dynamic dipole polarizability, C6 dispersion coefficient and dispersion energy were derived and coded as a part of a treatment of the dispersion...