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The epithelial components of the lungs develop from an outpouching of the laryngotracheal tube that projects inferiorly and then laterally into the pericardio-peritoneal sac. Eventually, the latter forms the pleura. The main lung buds on each side ramify into successively smaller elements of the bronchial tree. The surrounding mesoderm migrates into this tissue to form cartilage and muscle.
The capillary bed develops at 23-24 weeks; this defines the limit of viability of birth. The definitive alveoli don't appear until term and then continue to develop until age 8-11 years. The majority of an adult's alveoli are produced in this time. Surfactant begins to be produced from six months in utero.
Lung fluid is being produced at a rate of 300mls/day at term; this fills the lungs to their resting volume of 100 mls. Also, it is contributed to by the swallowing of aminiotic fluid; this may be forcibly exhaled at birth or absorbed into the lungs.
The combination of breathing movements and sufficient liquor volume aid proper lung development.
Conditions such as oligohydramnios lead to pulmonary hypoplasia, for example, in Potter's syndrome.