Multi-product firms, exports and exchange rate policies. Evidence from an emerging economy

Bulgaria follows a currency board tied to the euro. The analysis of the effects that adopting the euro might have on its export sector is crucial for Bulgaria and other similar Eastern European countries. Bulgaria, a middle-income country has now more multi-product firms (MPFs) than single-product firms (SPFs). Thus, MPFs is not only a characteristic of only high-income countries. The contribution of adding and dropping products within a single firm is important to the export sector and the aggregate economy. MPFs benefit from exporting to EU markets by becoming more productive and encouraged to exporting more product varieties while beating down the costs of producing these new varieties and the cannibalization effect. These MPFs might be in advantage as a result of facing lower exchange rate costs and being better exposed to the acquisition of know-how and technology from participating in EU markets. MPFs cut their product diversity only to non-EU countries to keep core competence and in response to adverse changes in the exchange rate.