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The study finds that decreasing the size of school districts has a substantial and statistically significant positive effect on graduation rates. Conversely, consolidation of school districts into larger units leads to more students dropping out of high school. The results of the analysis indicate that decreasing the average size of a state's school districts by 200 square miles leads to an increase of about 1.7 percentage points in its graduation rate. This finding is particularly important for states with very large school districts.