Can employee referral hiring reduce attrition?

Yes, Employee Referral Hiring can definitely reduce attrition.
It has been a tried and tested Recruitment method in my previous companies.
In my experience, many people prefer to work in Companies where they know people which helps improve the working environment.

These are two separate terms and I don't see direct relation between them, employee referral is good when we know that the incoming individual has a fair idea about organization, as he is being referred by our existing employee and chances are their he could stay with us but attrition is something totally different. If we are not working the reasons of attrition then either we have employee referral or normal hiring we keep on losing the candidates. So we need to work out on reducing the turnover rate so that we have higher retention.