Quantitative Evaluation of the Determinants of Export and FDI: Firm-level Evidence from Japan Yasuyuki Todo Graduate School of Frontier Sciences, University of Tokyo, and the Research Institute of Economy, Trade and Industry, Tokyo 1. INTRODUCTION R ECENT empirical studies on international trade at the firm level have found that firms engaging in export or foreign direct investment (FDI) are generally more productive and larger than those firms serving only domestic markets. 1 This finding is consistent with the theoretical predictions of hetero- geneous-firm trade models, most notably Melitz (2003) and Helpman et al. (2004), in which only productive firms can pay the entry costs associated with export and FDI and hence serve foreign markets. This apparent consistency between theory and empirics has helped deepen our understanding of the process of firm internationalisation. This research was conducted as part of a project on ‘International Trade and Firms’ undertaken at the Research Institute of Economy, Trade and Industry (RIETI). The author would like to thank RIETI for financial support and the Ministry of Economy, Trade and Industry (METI) for providing the firm-level datasets for Japan. The author is also grateful to an anonymous referee, Richard Bald- win, Banri Ito, Isao Kamata, Toshiyuki Matsuura, Thierry Mayer, Hiroshi Ohashi, Hitoshi Sato, Ryuhei Wakasugi, seminar participants at the World Trade Institute, La Trobe University and RI- ETI, and delegates at meetings of the American Economic Association for helpful comments. The opinions expressed and arguments employed in this article are the sole responsibility of the author and do not necessarily reflect those of RIETI, METI or any institution to which the author is affili- ated. 1 Existing works on this issue include Clerides et al. (1998) for Colombia, Mexico and Morocco, Bernard and Jensen (1999, 2004) and Bernard et al. (2003) for the USA, Head and Ries (2003) and Tomiura (2007) for Japan, Barrios et al. (2003) for Spain, Greenaway and Kneller (2004) for the UK, Mayer and Ottaviano (2007) for various European Union (EU) countries, Damijan et al. (2007) for Slovenia and Eaton et al. (2008) for France. Useful surveys of this literature can be found in Bernard et al. (2007), Greenaway and Kneller (2007) and Wagner (2007). The World Economy (2011) doi: 10.1111/j.1467-9701.2011.01331.x Ó 2011 Blackwell Publishing Ltd., 9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA. 355 The World Economy