This paper develops a stochastic model of grade repetition to analyze the large racial differences in progress through secondary school in South Africa. The model predicts that a larger stochastic component in the link between learning and measured performance will generate higher enrollment, higher failure rates, and a weaker link between ability and grade progression. Using recently collected longitudinal data we find that progress through secondary school is strongly associated with scores on a baseline literacy and numeracy test. In grades 8-11 the effect of these scores on grade progression is much stronger for white and coloured students than for African students, while there is no racial difference in the impact of the scores on passing the nationally standardized grade 12 matriculation exam. The results provide strong support for our model, suggesting that grade progression in African schools is poorly linked to actual ability and learning. The results point to the importance of considering the stochastic component of grade repetition in analyzing school systems with high failure rates.
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