This article explores the evolutionary process of industrial development accompanying with the firm's entry, exit, and quality upgrading of engine, based on a case study of the motorcycle industry in postwar Japan. We divided this period into three stages: the “entry stage”, “exit stage”, and the “convergence stage”. We test the determinants of firm's survival and the quality level of motorcycles, the firm level data sets and econometric techniques. The results of the estimations indicate that learning by doing positively affects a firm's duration and, that clusters play an important role in the quality through the innovation and diffusion of knowledge.