The effect of grade retention on secondary school dropout: Evidence from a natural experiment

This paper analyses the effects of grade retention on secondary school dropout by evaluating a retention policy reform introduced in 2010 in Colombia. The reform ended the restriction that the annual number of retained students at a school could not exceed 5 percent of the total school population. Using administrative data at the school level, we estimate a difference-in-differences model that exploits variation in schools’ retention rates before and after the reform. We distinguish dropout rates by grade (grade 6 to 11). Moreover, we distinguish between retained students who dropped out of school by the end of the year of their retention and the dropout effect on all students enrolled in school the year after retention. Our robust estimates reveal that higher retention increases the rate of students dropping out of school the same year of their retention, that means not enrolling to repeat the failed grade. However, there is little, if any, causal effect of grade retention on the dropout rates of all other students enrolled in the school one year after retention. We find that the latter effect is stronger when retention takes place at the earlier grades whereas the effect for retained students is strongest when retention occurs at grade 9 and grade 11, when students would be entitled to receive the lower secondary school certicate and the high-school diploma respectively.